FedEx Corp. (NYSE: FDX) raised its fiscal 2026 adjusted earnings outlook after third-quarter revenue and profit increased, as growth at Federal Express outweighed weaker shipments and higher separation costs at FedEx Freight. The company now expects adjusted diluted earnings of $19.30 to $20.10 per share, compared with its December forecast of $17.80 to $19.00.
Revenue for the third quarter rose 8% year over year to $24.0 billion. Adjusted operating income increased 7% to $1.62 billion, while adjusted diluted earnings per share climbed 16% to $5.25. Adjusted operating margin was 6.7%, down 10 basis points from a year earlier.
On a GAAP basis, operating income rose to $1.35 billion from $1.29 billion, and net income increased to $1.06 billion from $909 million. GAAP diluted earnings per share were $4.41, up from $3.76. The adjusted results exclude costs associated with the planned FedEx Freight separation, business optimization initiatives and other specified items.
Federal Express offsets freight weakness
Federal Express revenue grew 10% to $21.2 billion, led by a 10% increase in U.S. domestic package revenue and growth in Europe and Asia-to-Europe services. Adjusted operating income advanced 18% to $1.68 billion, lifting the segment’s adjusted operating margin to 7.9% from 7.4%.
FedEx attributed the improvement to higher base yields, cost reductions and stronger U.S. domestic demand. Premium international export revenue also contributed to profit growth. The quarter marked the sixth consecutive period of adjusted margin expansion at Federal Express.
Nearly half of consolidated revenue growth came from business-to-business services, similar to the previous quarter. FedEx highlighted healthcare, automotive, data centers and aerospace as high-margin areas of focus. The company also reported its 11th consecutive quarter of international revenue-share gains.
FedEx Freight remained under pressure from weak less-than-truckload demand. Revenue declined 5% to $2.0 billion as shipments fell, while adjusted operating income dropped 49% to $134 million. Higher yields partly offset lower volume, increased wage rates and costs related to the planned separation.
Management said revenue per shipment and contract-rate capture improved sequentially. For the full year, FedEx expects Freight revenue to decline by a low-single-digit percentage. Fourth-quarter revenue is projected to be flat to slightly lower, with planned yield growth offsetting an expected mid-single-digit decline in shipments.
Revenue outlook and cost reductions
FedEx now forecasts fiscal 2026 consolidated revenue growth of 6.0% to 6.5%, compared with its previous estimate of 5% to 6%. That outlook implies fourth-quarter growth of 6.0% to 7.5%.
Federal Express revenue is expected to rise about 8% for both the full year and the fourth quarter, supported by U.S. domestic and international yields. FedEx also expects the segment’s adjusted operating income to increase both sequentially and year over year in the fourth quarter. Consolidated adjusted operating income is projected to grow sequentially.
The company now anticipates more than $1 billion of permanent transformation-related cost reductions in fiscal 2026. Its Network 2.0 program is expected to route about 35% of eligible volume through approximately 400 optimized facilities by the end of March, rising to roughly 65% by the next peak season. FedEx continues to target $2 billion of cumulative Network 2.0 and related One FedEx savings by the end of 2027.
FedEx said it increased volumes while reducing net capacity and fuel use, improving network density. It also reallocated some company-operated aircraft capacity to Asia-to-Europe and intra-Asia routes in response to changes in global trade policy.
Capital expenditure is now expected to total $4.1 billion in fiscal 2026, down from the $4.5 billion assumption provided in December. The adjusted effective tax rate is forecast at approximately 24%. The earnings outlook assumes no share repurchases in the fourth quarter and includes expected pressure from share dilution and higher interest expense following FedEx Freight’s recent debt issuance.
Freight separation remains scheduled for June
FedEx said the tax-free separation of FedEx Freight remains on track for June 1, 2026. The business is expected to list on the New York Stock Exchange under the ticker FDXF, and its leadership team is in place. FedEx Freight completed a $3.7 billion debt offering in January, while the hiring of its dedicated sales force is substantially complete.
The company plans to hold a FedEx Freight investor day on April 8 in New York. Even with those preparations, FedEx expects the unit’s fourth-quarter adjusted operating income to decline from a year earlier because of soft LTL demand and higher separation costs.
FedEx’s outlook assumes its current economic and fuel-price forecasts and no additional adverse economic, geopolitical or international trade developments. The company identified uncertain global trade conditions, execution of Network 2.0 and other transformation programs, the Freight separation, shifting volume and capacity requirements, labor and transportation costs, fuel and currency movements, technology disruptions and regulatory changes among the factors that could cause results to differ from its expectations.
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