FEDEX CORP (FDX)·Q2 2025 Earnings Summary

Executive Summary

• Adjusted EPS rose to $4.05 (+1.5% y/y; +12.5% q/q), while GAAP EPS was $3.03 (-14.6% y/y; -5.6% q/q); revenue was $21.97B (-1% y/y; +1.8% q/q) .
• Guidance cut: FY25 revenue now ~flat (prior low single-digit increase); adjusted EPS range reduced to $19.00–$20.00 from $20.00–$21.00; ETR lowered to ~24.0% from ~24.5% — a clear negative surprise; buybacks reaffirmed ($2.5B for FY25) .
• FedEx announced intent to separate FedEx Freight within ~18 months, creating a new public LTL company — major structural catalyst, with ongoing commercial/operational tech cooperation planned .
• Transformation progress: DRIVE savings of $540M in Q2, Network 2.0 rollout (200 stations, 10% P&D cost reduction where fully rolled out), Tricolor air redesign boosting international freight mix — supportive to margin trajectory .
• Demand headwinds persist (U.S. industrial softness; USPS contract expiration), with management flagging a heavier USPS headwind in Q3 offset by peak/Cyber Week timing, and stronger Q4 seasonality historically .

What Went Well and What Went Wrong

• What Went Well

  • Federal Express (FEC) adjusted operating profit up 13% y/y on flat revenue, driven by DRIVE, base yield improvement, and higher international export demand .
  • International export package volume +9% y/y; composite package yield +1% y/y, signaling early Tricolor progress in global airfreight .
  • Europe improving: revenue growth and operating optimization; dimensional pricing rollout at CDG with expected >$50M FY25 operating income benefit .

• What Went Wrong

  • FedEx Freight revenue -11% y/y; operating income -36% y/y; operating margin down 570bps — driven by fewer shipments, lower fuel surcharges, reduced weight per shipment and competitive pricing .
  • USPS contract expiration intensified cost removal needs; USPS headwind to be larger in Q3 before easing in Q4; FY25 headwind embedded at ~$500M in the operating bridge .
  • Guidance cut reflects constrained demand and pricing environment on premium services; estimates for industrial production remain cautious .

Financial Results

Non-GAAP adjustments and impact: Business optimization costs of $326M added back in Q2 (EPS impact $1.02); adjusted operating margin 6.3% vs GAAP 4.8% .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our second quarter results demonstrate that our efforts to transform our operations are working… delivered operating profit growth despite… weak U.S. domestic demand… and the expiration of our U.S. Postal Service contract” — Raj Subramaniam .
• “We achieved DRIVE savings of $540 million in Q2… we remain confident that we will deliver our targeted $2.2 billion in incremental savings in FY ’25” — Raj Subramaniam .
• “We plan for the new company to continue to operate under the FedEx Freight name… customers will continue to enjoy the superior service, speed and coverage… while maintaining access to the unparalleled global ecosystem of FedEx Services” — Raj Subramaniam .
• “Total nonstandard surcharges are generating… over $180 million annualized. This is the result of a new AI image capture process” — Brie Carere .
• “We now expect an adjusted EPS outlook range of $19 to $20… revenue expectations remain constrained due to the demand environment” — John Dietrich .

Q&A Highlights

• Guidance cadence: Q3 benefits from ramping DRIVE and Cyber Week timing but USPS headwind more than offsets; Q4 remains seasonally strongest despite one fewer day .
• Freight spin specifics: ~18 months timeline seen as reasonable; existing intercompany agreements will be enhanced post-separation to preserve operational cooperation .
• Network 2.0 rollout: 200 stations optimized (130 in Canada), with 10% P&D cost reduction where fully rolled; major lift expected FY26 .
• Pricing environment: Competitive but rational; base rates pressured by economy and mix; disciplined surcharge capture (peak, large package, rural) increasingly contributes .
• Tariffs/macro: Some potential pull-forward observed; FedEx emphasizes agile capacity adjustments and principle against taxpayer-subsidized delivery .

Estimates Context

• Wall Street consensus estimates from S&P Global for Q2 FY25 EPS and revenue were unavailable at the time of this analysis due to data access limits. As a result, estimate comparisons and beat/miss assessments are not included. Values would normally be sourced from S&P Global.

Key Takeaways for Investors

• Freight separation is a structural catalyst that could unlock value while preserving commercial/operational synergies; expect continued cooperation agreements and shared brand post-spin .
• Guidance cut (revenue ~flat; adjusted EPS $19–$20) reflects persistent industrial softness and USPS contract headwind; near-term skew risks lie in Q3 headwind magnitude vs. peak/Cyber timing tailwinds .
• DRIVE savings execution is robust ($540M in Q2; $2.2B FY25 target), with Network 2.0 and Tricolor driving cost-to-serve reductions and improved airfreight mix — supportive to margin expansion as volumes recover .
• FEC resilience vs. Freight pressure: FEC adjusted op profit growth despite macro; Freight volumes/weights/yields still challenged; monitor Freight margin trajectory and any early benefits from incremental LTL salesforce build-out .
• Europe is an improving story: revenue and operational performance benefiting from data-driven pricing and routing; dimensional pricing rollout to drive >$50M FY25 benefit .
• Capital allocation steady: CapEx $5.2B maintained; buybacks $2.5B planned (Q2 $1.0B completed; +$0.5B planned 2H); dividend at $1.38/qtr .
• Trading lens: Stock likely reacts to the dual narrative — negative (guidance cut, Freight weakness, USPS headwind) vs. positive (spin catalyst, transformation savings, international/Europe momentum). Position sizing should account for Q3 USPS headwind and potential Q4 seasonal strength .