FEDEX CORP earnings calls

pricing and U.S. margin drivers

Q (Richa Harnain · Deutsche Bank): Analyst asked for the breakdown of headline yields: how much came from fuel vs core, and how domestic margin headwinds (line haul, pilot costs, variable comp) affect Q4 and 2027 margin outlook.

A: Brie said calendar year 2026 has an improved pricing environment vs 2025, with base yield growth about half of year-over-year yield growth and a focus on premium e-commerce where Ground economy volume was down 4% intentionally. Claude said domestic margin would have been up in Q3 except for the fuel surcharge and listed headwinds: $100 million pilot agreement, $75 million variable compensation, and higher purchase transportation rates accelerating into Q4. They said those line-haul cost pressures affect a minority of miles and that they have operational and commercial levers to address them, so they are confident in margin expansion for CY 2027.

"I think from a headline perspective, we continue to see that calendar year 2026 has an improved pricing environment over calendar year 2025." — Brie Carere

monetizing Freight stake and capital use

Q (Brian Ossenbeck · JPMorgan): Analyst asked how management might monetize the FedEx Freight stake and how they will think about leverage and using debt for buybacks.

A: Raj said they are focused on free cash flow and are targeting $4 billion this calendar year and $6 billion by CY 2029, which gives them optionality for capital allocation and shareholder returns, evidenced by the $2 billion buyback this quarter. Claude said to preserve the tax-efficient status of the separation they must monetize the stake within 24 months and that they will deploy that capital to maximize shareholder value, continuing to deploy cash to enhance shareholder returns.

"Firstly, as I have mentioned in my remarks and you heard throughout, that we are focused significantly on our free cash flow, and we are targeting $4 billion of free cash flow this calendar year." — Raj Subramaniam (CEO)

Q4 headwinds and international margins

Q (Scott Group · Wolfe): Analyst asked why pilot costs and purchase transportation are transitory and whether 2027 growth will re-accelerate; also asked how FedEx will close the international margin gap to peers.

A: Claude said Q3 domestic margin would have been up except for the fuel surcharge, and Q4 includes higher purchase transportation (about $130 million), a $100 million pilot agreement, and $80 million of aircraft maintenance, but they expect levers to minimize these and see higher growth and more flow-through in 2027. Raj said international is a major upside with Q3 showing 17% revenue and 52% operating growth year-over-year, and they target an 8% international operating margin by CY 2029 with a Europe plan to cut domestic capacity and improve mix to drive $650 million operating profit improvement by CY 2029 and then move to double-digit margins.

stranded costs and Network 2.0 ramp

Q (Ken Hoexter · BofA): Analyst asked about stranded costs from FedEx Freight and any other costs from Network 2.0, and how those ramp into 2027 given the Q4 outlook.

A: Claude said they started the year with a $350 million Freight stranded cost starting point and are confident they will end the year at $250 million, with significant progress to reduce that during CY 2027 and not expecting stranded cost talk past 2027. He also reiterated Network 2.0 is on track to deliver $2 billion by the end of CY 2027 and that variable compensation should not be a headwind in CY 2027, while they work through exact 2027 planning.

"And we have done a good job this year and are confident we're going to end this year at that $250 million." — Claude Russ (CFO)

2027 savings and volume view

Q (Chris Wetherbee · Wells Fargo): Analyst asked how Network 2.0 and international improvements flow into 2027 and whether 2027 will be better for volume growth domestically and internationally.

A: Claude noted the pilot contract continues into first half of CY 2027 then abates in the second half and warned Q4 next year has one less operating day (~$150 million+ headwind), but variable comp will not be a headwind in CY 2027. Brie said they remain committed to 4% core growth beyond CY 2026 (excluding fuel), defined as 2% volume and 2% yield, with 50%+ B2B focus, and she said the team is currently beating that target through disciplined commercial execution.

"So right now, we are committed to our 4% growth, beyond CY 2026 that we discussed in the February Investor Day." — Brie Carere

peak demand and customer outlook

Q (Ari Rosa · Citi): Analyst asked about peak expectations, what customers are saying about demand and fuel costs, and whether consumers will be able to pass on fuel surcharges.

A: Brie said they expect about 10% revenue growth in Q4 and high single-digit growth in the U.S., noting Q4 vs Q3 is slightly lower because they are lapping a strong prior-year Q4. She said top 30 customers drive about 35% of their peaking factor and those customers forecast about a 2% average daily volume growth for the peak period; SMBs are strong and customers so far are able to pass on the high fuel surcharge.

"In general, they are forecasting about a 2% average daily volume growth for peak, and that is specific to the peak period, which is sort of Black Friday through Christmas." — Brie Carere

Network 2.0 progress and timing

Q (David Vernon · Bernstein): Analyst asked if management is on track for domestic margin improvement, progress on Network 2.0, timing for the final 35% switch, and whether there are backend savings in 2027.

A: Raj said he is 100% convinced they will improve U.S. domestic margins in 2027 and beyond and highlighted Network 2.0 progress: Canada done, major U.S. metros finished, and next after peak are Los Angeles, Charlotte, and Oklahoma City. He said they have closed more than 260 facilities, optimized nearly 630 stations, are targeting $1 billion of savings in 2026 and a cumulative $2 billion by 2027, and expect a strong opportunity to improve U.S. domestic margins in 2027.

"To answer your top-line question, 100% we are convinced that we are going to improve our U.S. domestic margins in 2027 and then on beyond." — Raj Subramaniam (CEO)

invest vs buybacks with free cash flow

Q (Jonathan Chappell · Evercore): Analyst asked whether management will invest free cash flow into business verticals or use it mainly for buybacks, and if there are gaps in the portfolio to fill.

A: Raj said their portfolio is largely complete and that they have a scaled global network and growing digital intelligence, which are valuable in the current environment. He said there may be small things to add but the physical portfolio is mostly in place and they are focused on verticals like healthcare, automotive, data center and aerospace where they already have strength.

"Our portfolio is more or less fully intact." — Raj Subramaniam (CEO)

timing of margin inflection and international step-up

Q (Jordan Alliger · Goldman Sachs): Analyst asked when the domestic margin inflection will occur (first half or second half 2027) and whether there is another step-up in international given strong Q3 results.

A: Claude said he expects international margin to expand in Q4 year-over-year and to improve across CY 2027. He said they are mid-planning for CY 2027 and will not give precise timing now, and they will discuss CY 2027 timing on the Q4 call.

"No, we absolutely expect international margin to expand in Q4 year-over-year and would expect international margin to absolutely improve across CY 2027." — Claude Russ (CFO)

transport cost pressure outlook

Q (Tom Wadewitz · UBS): Analyst asked if higher line-haul and truckload costs are temporary until inflation cools or structural and persistent, and how management thinks about passing costs into rates.

A: Raj said capacity tightening from fewer drivers will ultimately be good for the industry, though timing matters, and they are seeing incremental cost pressures concentrated in about 10% of the capacity discussed. He said they have levers to balance use of that capacity and to incorporate costs into pricing models, and Claude added that over time this is helpful and they can manage it with commercial and operational levers.

"At the high level here, when there's tightening in capacity because of reduction in the driver capacity, it's actually going to be good for our industry when it's all said and done." — Raj Subramaniam (CEO)

B2B competition and positioning

Q (Brandon Oglenski · Barclays): Analyst asked how management views B2B competition in U.S. domestic market going into 2027 and how FedEx rates its position to win premium verticals.

A: Brie said they view the market as large (more than $600 billion globally) and they have targeted four verticals representing over $130 billion, and that 60% of revenue is B2B with strong Q3 B2B performance including double-digit healthcare and pharma growth and fastest growth in AI/data center. She said FedEx has a unique end-to-end network, a trusted brand for security in these verticals, and customer-focused execution that is driving B2B growth into CY 2027.

"Right now, we are really excited, as Raj mentioned earlier, about our position in this market and our existing value proposition." — Brie Carere