ii view: US economic bellwether FedEx beats forecasts

Second-quarter results to 30 November  

• Revenue up 7% to $23.5 billion (£17.6 billion) 
• Adjusted earnings up 19% to $4.82 per share
• Quarterly dividend unchanged from Q1 at $1.45 per share

Guidance: 

• Now expects revenue growth for the current 2026 fiscal year of between 5% to 6%, up from a previous 4% to 5%
• Expects adjusted EPS for the 2026 fiscal year of $17.80 to $19.00, up from a previous $17.20 to $19.00
• On track to separate out Freight business by June 2026

Chief executive Raj Subramaniam, said: “FedEx delivered an outstanding second quarter as we successfully executed our growth strategy and advanced our network transformation, while navigating a highly challenging external environment.”

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ii round-up:

Global courier FedEx Corp (NYSE:FDX) detailed sales and profit-beating Wall Street hopes, pushed by increased US parcel volumes and management’s ongoing focus to reduce costs. 

Growth in US domestic parcel volumes countered reduced international economy volumes pushing second-quarter revenues to late November up 7% to $23.5 billion (£17.6 billion). A continuing push to cut costs by $1 billion this financial year helped adjusted earnings rise 19% to $4.82 per share. Analysts had expected outcomes of $22.8 billion and $4.11 per share respectively. 

Shares for the S&P 500 company rose 1% in post-results US trading having come into these latest results up around 2% so far in 2025. The S&P 500 is up 15% year-to-date. Shares for rival United Parcel Service Inc Class B (NYSE:UPS) are down by almost a fifth over that time. 

Employing more than 500,000 people, FedEx ships a daily average of around 17 million parcels across a network of more than 200 countries. 

Strength in US parcel volumes and the group’s ongoing performance improvement plan are now expected to see full-year revenues growing by 5% to 6%, with adjusted earnings coming in at between $17.80 to $19.00. That up from previous estimates of 4% to 5% and $17.20 to $19.00 respectively.

The Memphis-headquartered company remains on track to provide its Freight trucking business, which transports loads between different service centres, with its own New York stock exchange listing by June 2026. 

The S&P 500 company continues to predict capital expenditure of $4.5 billion over the full year with technology and artificial intelligence (AI) adaptation focuses. 

A quarterly dividend of $1.45 per share, and payable to eligible shareholders on 6 January, is unchanged from the prior quarter. Share buybacks totalled $276 million during the period. 

ii view:

FedEx was started in 1973 by Frederick W. Smith. Today, the group’s aircraft-related Express Services generate its biggest slug of sales at 47%. That’s followed by Ground Services at 39%, Freight 10% and other services a balance of 4%. Geographically, the US remains most significant at 71%, with international ops the balance. 

For investors, US trade tariffs adding costs for companies exporting and shipping products to the US now mean headwinds. The pending start of 2026 delivery price increases come despite a highly competitive environment. An estimated future price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while costs such as staff wages remain upwardly pressured.

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On the upside, US parcel volumes remain robust, countering some weakness for international business. Cost savings under its “Drive” transformation programme continue to be targeted. An expected 2026 stock market listing of its freight business may help shine a light on the value of the wider group, while a forecast future dividend yield of around 2% is not to be overlooked.  

On balance, and despite ongoing risks, this arguable bellwether of the US economy continues to justify its place in many already diversified investor portfolios. 

Positives: 

• Performance improvement plan
• Diverse customer base

Negatives:

• Uncertain economic outlook
• Volatile costs

The average rating of stock market analysts:

Buy