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FEDEX CORP (FDX)·Q3 2025 Earnings Summary
Executive Summary
- Q3 FY2025 delivered modest top-line growth with revenue up 2% to $22.2B and adjusted diluted EPS up 17% YoY to $4.51, driven by $600M DRIVE savings, higher base yields, and volume growth at Federal Express; GAAP EPS was $3.76 .
- Guidance was cut: FY2025 adjusted EPS to $18.00–$18.60 (from $19.00–$20.00) and EPS before MTM to $15.15–$15.75 (from $16.45–$17.45); revenue now flat to slightly down and CapEx reduced to $4.9B (from $5.2B) .
- Segment mix: Federal Express operating income rose 10% YoY to $1.29B; FedEx Freight operating income fell 23% YoY to $261M amid softer B2B demand and lower fuel surcharge revenue .
- Catalysts: Guidance reduction and continued B2B softness weigh near term; transformation progress (DRIVE, Network 2.0, Tricolor), buybacks ($0.5B in Q3; $2.5B FYTD), and Freight spin-off preparation support medium-term value creation .
What Went Well and What Went Wrong
What Went Well
- Adjusted operating income +12% YoY and adjusted EPS +17% YoY; DRIVE savings of $600M in Q3 supported margin expansion despite headwinds .
- Federal Express performance: adjusted operating income +$206M YoY, aided by base yield improvement and increased U.S. and international export demand; operating margin up 40 bps YoY to 6.7% GAAP and 7.4% adjusted .
- Strategic execution: RouteSmart acquisition to enhance route optimization; European service levels improved, on track for $600M DRIVE savings in Europe by year-end .
What Went Wrong
- Guidance cut reflects weaker B2B demand, international export yield pressure (especially economy), and higher-than-expected inflation on costs; FY revenue now flat to slightly down .
- FedEx Freight: revenue -5% YoY and operating margin down 300 bps to 12.5%; fewer shipments and lower weight per shipment pressured results .
- USPS contract expiration and severe weather: $180M adjusted OI headwind in Q3; weather impact ~$70M; contract pressure persists into Q4 though easing as costs are removed .
Financial Results
Consolidated Performance vs Prior Periods (GAAP and Adjusted)
Segment Breakdown – Q3 FY2025
KPIs – Q3 FY2025 Operating Metrics
Guidance Changes
Earnings Call Themes & Trends
Management Commentary
- “Revenue was up 2%… DRIVE savings continue to build… we achieved $600 million of savings in the quarter… 12% adjusted operating income growth compared to last year” – Raj Subramaniam .
- “At Federal Express… adjusted operating income up 17% despite significant headwinds from the expiration of the United States Postal Service contract and severe weather events” – Raj Subramaniam .
- “We are lowering our FY ’25 adjusted EPS outlook to $18 to $18.60” – Raj Subramaniam .
- “This bridge now reflects adjusted operating profit of $6.2B… we now expect a $1.1B headwind… revised second half assumptions for revenue and inflation” – John Dietrich .
- “We acquired RouteSmart Technologies… best-in-class algorithm… enabler of Network 2.0 and our global network transformation” – Raj Subramaniam .
- “We will exit the fourth quarter by achieving our FY ’25 goal at an annualized DRIVE run rate north of $2.2 billion” – John Dietrich .
Q&A Highlights
- Cost inflation: persistent pressures in purchased transportation and wages cited as key drivers of guidance change; inflation “has been a constant” .
- De minimis readiness: operational capability in place globally; minority of export revenue exposed; customers being supported with clearance data and tools .
- Network 2.0 productivity: maintaining service while achieving ~10% P&D cost reduction; targeted volume flow through integrated facilities (12% FY25, ~40% FY26) .
- LTL margins and trajectory: expecting sequential revenue improvement and strong Q4 margins despite YoY revenue decline; positioned to capture B2B recovery when it comes .
- Fleet: adding 777Fs at attractive prices; extending MD-11 retirements to FY’32 to ensure flexibility; aircraft CapEx ~$1B in FY’26 and beyond .
Estimates Context
- Wall Street consensus (S&P Global) for Q3 FY2025 revenue/EPS/EBITDA was unavailable at time of analysis due to access limits; therefore, formal beat/miss vs consensus cannot be assessed. Values retrieved from S&P Global were unavailable at this time.
- Company’s FY2025 adjusted EPS guidance reduced to $18.00–$18.60 and EPS before MTM to $15.15–$15.75, implying consensus estimates may need to recalibrate lower on the year absent macro improvement .
Key Takeaways for Investors
- Federal Express execution offset macro headwinds: adjusted margin expanded 60 bps and adjusted EPS rose 17% YoY, underpinned by DRIVE and yield discipline, even as USPS expiration and weather pressured results .
- Guidance reset is the near-term stock narrative: adjusted EPS cut to $18.00–$18.60 with revenue flat to slightly down, citing B2B weakness, yield pressure in international economy, and higher inflationary costs .
- Transformation remains the medium-term thesis: Network 2.0 and Tricolor drive density and cost reductions; RouteSmart enhances optimization; Europe improving service and profitability with $600M DRIVE savings targeted .
- Freight spin-off prep advancing: debt exchange completed; separation office established; continued focus on service and revenue quality at Freight ahead of stand-up .
- Capital allocation supportive: $0.5B Q3 buybacks ($2.5B FYTD) and CapEx trimmed to $4.9B, with aircraft CapEx around $1B in FY’26 and beyond; cash $5.1B at quarter-end .
- Watch mix/yield dynamics: deferred parcel demand outpacing priority; pricing remains rational and premium yields improving, but international export economy yields under pressure .
- Near-term trading lens: sensitivity to macro/B2B indicators and tariff headlines; upside on continued DRIVE savings and network optimization; Freight margin stabilization would be a positive signal .