- Revenue Growth: Q2 revenue rose 7% YoY, driven by US domestic package services with strong yield and volume growth.
- Adjusted EPS Surge: Adjusted EPS reached $4.82, up 19% YoY, with full-year guidance raised to $17.80–$19.00.
- Freight Segment Struggles: FedEx Freight’s adjusted operating income fell $70M, and margin dropped 3 pts, though yields turned positive.
- Network 2.0 Progress: Automated facilities now handle 24% of volume, targeting 65% by next peak season, driving $2B in cost savings by 2027.
- Capital Allocation: $300M stock repurchase in Q2, with $1.3B remaining, and $1.4B CapEx on track for $4.5B annual investment in FY26.
Segment Performance
FedEx Freight's results were pressured due to lower volumes, with adjusted operating income declining by $70 million and adjusted operating margin contracting by three percentage points. However, the team is positioned well for the eventual recovery, with yields turning positive in Q2, demonstrating the division's disciplined strategy.
Outlook and Guidance
The company raised its adjusted EPS outlook to $17.80 to $19.00 and expects 5% to 6% consolidated revenue growth for fiscal year 2026, supported by sustained US domestic yield and volume growth. FedEx now expects to deliver adjusted EPS of $17.8 to $19, reflecting a range of potential scenarios for the back half of the year.
Operational Highlights
FedEx is seeing benefits from its Network 2.0, with 24% of volume flowing through automated facilities. The company targets 65% of volume to be processed through these facilities by next peak season and a 30% footprint reduction by the end of fiscal year 2027, leading to $2 billion in cost savings.
Valuation and Metrics
With a P/E Ratio of 16.18 and EV/EBITDA of 8.18, FedEx's valuation appears reasonable, considering its growth prospects and profitability improvements. The company's ROE of 21.01% and Free Cash Flow Yield of 6.38% are also attractive. Analysts estimate next year's revenue growth at 4.8%, indicating a stable outlook.
Strategic Initiatives
FedEx is scaling AI adoption across the organization to drive innovation and efficiency. The company is also preparing for the spin-off of FedEx Freight, which is on track for June 1, 2026, and has submitted a confidential Form 10 to the SEC.
Challenges and Risks
Despite the positive outlook, FedEx faces headwinds from variable incentive compensation accruals, sustained weak LTL industry trends, and MD-11 groundings. The company expects a $1 billion headwind estimate for FY '26, which does not assume any changes in trade patterns.