FedEx delivered solid financial performance in Q1 fiscal 2026, with consolidated revenue growing 3% year-over-year to $22.2 billion. This growth was primarily driven by strong performance in the Federal Express segment, which saw revenue increase 4% to $19.1 billion, while the FedEx Freight segment experienced a 3% decline to $2.3 billion due to challenging market conditions in the less-than-truckload (LTL) sector.

Operating performance showed significant improvement, with adjusted operating income increasing 7% to $1.30 billion, representing a 5.8% margin compared to 5.6% in the prior year. The 20 basis point margin expansion demonstrates the company’s successful execution of its transformation initiatives, including Network 2.0 optimization and structural cost reductions that more than offset inflationary pressures.

Adjusted net income reached $0.91 billion, up 2% from $0.89 billion in the prior year period. The company achieved adjusted diluted earnings per share of $3.83, representing a 6% increase from $3.60 in Q1 fiscal 2025. This earnings growth was supported by both operational improvements and a reduction in share count due to the company’s active share repurchase program.

On a GAAP basis, results included several one-time charges totaling $0.37 per share, including $0.22 for business optimization costs, $0.14 for FedEx Freight spin-off preparation costs, and $0.01 for fiscal year change costs. The company also experienced a non-recurring income tax expense of $16 million primarily related to examination of prior year tax filings.

Cash flow generation remained strong, with the company maintaining a robust cash position of $6.2 billion. This strong liquidity position provides significant flexibility for continued investment in strategic initiatives, shareholder returns, and preparation for the planned FedEx Freight separation.

Federal Express Segment delivered strong performance with revenue increasing 4% to $19.1 billion and operating income growing 19% to $1.14 billion. Operating margin expanded 80 basis points to 6.0%, reflecting successful yield management and continued benefits from transformation initiatives. The segment benefited from higher U.S. domestic and international priority package yields, increased U.S. domestic package volume, and continued cost savings from Network 2.0 optimization.

U.S. domestic package revenue showed particularly strong performance, with priority services growing 7%, deferred services up 11%, and ground services increasing 7%. Total U.S. domestic package revenue reached $12.7 billion, representing 8% growth year-over-year. Average daily volume in the U.S. domestic market increased 5% to 13.9 million packages, while composite package yield improved 3% to $14.25.

International operations showed resilience despite challenging global trade conditions. International priority revenue increased 2% while international economy remained flat. However, yields improved significantly, with international priority yield up 13% to $62.77 per package, demonstrating effective pricing discipline in the face of volume softness.

FedEx Freight Segment faced headwinds with revenue declining 3% to $2.3 billion, reflecting the challenging environment in the LTL freight market. Operating income decreased 18% to $360 million, though the segment maintained a strong 16.0% operating margin. The decline was primarily due to lower shipment volumes, with average daily shipments decreasing 2% to 90,000, and revenue per shipment declining 1% to $374.62.

Despite volume pressures, FedEx Freight continued to demonstrate pricing discipline, with revenue per hundredweight remaining relatively stable at $40.50. The company hired additional dedicated LTL sales professionals during the quarter to strengthen its competitive position and drive future growth as market conditions improve.

The planned spin-off of FedEx Freight remains on track for completion by June 2026, with the company having submitted confidential Form 10 to the SEC in August and requesting a private letter ruling on tax treatment from the IRS in September. Once separated, FedEx Freight will trade under the ticker symbol FDXF.

FedEx continued executing on its comprehensive transformation strategy during Q1 fiscal 2026, with several key initiatives delivering tangible results:

Network 2.0 Optimization

• Cost Structure Improvement: The company remains on track to achieve $1 billion in permanent cost reductions from transformation-related savings
• Network Efficiency: Continued optimization of pickup and delivery routes, consolidation of facilities, and improved asset utilization
• Automation Investments: Strategic capital deployment in automation and technology to enhance operational efficiency and reduce labor dependency
• Flexible Network Design: Implementation of flexible network architecture that can adapt to changing demand patterns and optimize cost-to-serve

Digital Platform Development

FedEx leveraged its unique operational data platform from moving 17 million packages through its network daily to enhance customer experience and operational efficiency. The company’s digital capabilities enable real-time optimization, predictive analytics, and enhanced customer visibility across the entire shipping process.

FedEx Freight Spin-off Preparation

The planned separation of FedEx Freight into an independent publicly traded company advanced significantly during the quarter. Key milestones achieved include:

• Submission of confidential Form 10 to the SEC in August 2025
• Request for private letter ruling on tax treatment submitted to IRS in September 2025
• Continued organizational and operational preparation for independent operation
• Expected completion by June 2026 under ticker symbol FDXF

Pricing and Revenue Management

FedEx announced rate increases averaging 5.9% effective January 5, 2026 for both parcel and FedEx Freight LTL shipping rates. This pricing action reflects the company’s commitment to maintaining appropriate returns on invested capital while funding continued service improvements and network investments.

FedEx provided comprehensive guidance for fiscal 2026, reflecting confidence in its strategic initiatives and market positioning:

Financial Targets

• Revenue Growth: 4% to 6% year-over-year
• Diluted EPS: $14.20 to $16.00 (before MTM retirement adjustments)
• Adjusted Diluted EPS: $17.20 to $19.00 (excluding transformation costs)
• Effective Tax Rate: Approximately 25% (prior to MTM adjustments)
• Pension Contributions: Up to $400 million (reduced from prior forecast of $600 million)

Operational Targets

• Cost Reductions: $1 billion in permanent transformation-related savings
• Capital Spending: $4.5 billion focused on network optimization, fleet modernization, and automation
• Network 2.0: Continued advancement of structural cost reductions and efficiency improvements

The outlook assumes the company’s current economic forecast and fuel price expectations, with no additional adverse economic, geopolitical, or international trade-related developments. Management emphasized the company’s ability to navigate various scenarios while maintaining focus on value creation and disciplined capital allocation.

CFO John Dietrich noted: “Our first quarter results demonstrate our commitment to improving stockholder returns while executing on our strategic initiatives. Looking ahead, we are prepared to navigate a range of scenarios, while remaining focused on value creation and maintaining a disciplined approach to capital allocation.”

FedEx demonstrated strong commitment to returning capital to shareholders while maintaining investments in strategic growth initiatives:

Share Repurchase Program

• $500 million in share repurchases completed during Q1 fiscal 2026 via open market transactions
• Approximately 2.2 million shares repurchased, benefiting EPS by $0.02 per diluted share
• $1.6 billion remaining available under the 2024 stock repurchase authorization
• Continued commitment to opportunistic share repurchases subject to market conditions and liquidity needs

Dividend Policy

The company paid $345 million in dividends during the quarter, maintaining its commitment to consistent shareholder returns while preserving flexibility for strategic investments and debt management.

Capital Investment Strategy

Capital expenditures of $623 million in Q1 fiscal 2026 (down 19% from prior year) reflected disciplined spending focused on high-return projects including:

• Fleet modernization and fuel efficiency improvements
• Facility automation and sortation capability enhancements
• Technology infrastructure upgrades supporting digital transformation
• Network optimization and capacity optimization investments

The company’s strong balance sheet, with $6.2 billion in cash and cash equivalents, provides significant flexibility for continued strategic investments, potential acquisitions, and shareholder returns while preparing for the FedEx Freight separation.