FedEx Corporation 2027 Q1 Earnings Call

Please go ahead. Good afternoon, and welcome to FedEx Corporation's Calendar 2026 Third Quarter Earnings Conference Call, our first earnings call that aligns our results with a calendar year-end fiscal year.

The third quarter earnings release, stat book, and Form 10-Q, which also includes June 2026 results, are on our website at investors.fedex.com. Additionally, this afternoon, we released an 8-K filing with our recasted and resegmented financials for Q1 and Q2 of this calendar year. This call and the accompanying slides are being streamed from our website. During our Q&A session, callers will be limited to one question to allow us to accommodate all those who would like to participate. Certain statements during this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Today's presentation also includes certain non-GAAP financial measures. Please refer to investors.fedex.com for a reconciliation of the non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures. Joining us for prepared remarks on the call today are Raj Subramaniam, President and CEO, Brie Carere, Executive Vice President and Chief Customer Officer, and Claude Russ, Enterprise Vice President and Interim CFO. Now, I will turn the call over to Raj.

Thank you, Jeni, and well done to Team FedEx for delivering another strong quarter. We're serving our customers well, driving significant free cash flow, and sustaining momentum toward our 2029 financial commitments. The third quarter, we grew revenue across key B2B verticals and premium B2C, which supported double-digit growth in consolidated adjusted operating income. From Network 2.0 to the optimization of our European network to our global air freight strategy, we continue to transform FedEx, driving greater density, flexibility, and efficiency. Building on our data and technology advantage, we announced new collaborations to provide value-added services for existing and new customers. We've also taken meaningful strategic actions to become a more focused company while deliberately allocating capital to create stockholder value. On June 1, we successfully spun off FedEx Freight. Earlier this month, we closed the sale of FedEx Supply Chain to CMA CGM Group.

We are nearing completion of the InPost transaction. This investment and subsequent commercial agreements will provide FedEx with access to InPost's expansive European B2C network while enabling us to deploy our assets more effectively across the European B2B space. Our earnings performance, solid execution from these portfolio-shaping actions, and CapEx discipline are driving strong adjusted free cash flow. With this cash generation, we are focused on rewarding our stockholders. Since June, we have repurchased $2 billion worth of FedEx stock. Our June through September repurchases were greater than our original plan and a reflection of our conviction in the substantial value that exists in our shares. Turning to our Q3 consolidated results. On a year-over-year basis, we grew revenue by 12%, supported by strong base yields across both our Express U.S. Domestic and international segments. We more than offset cost headwinds from purchased transportation rates, the new pilot agreement, and variable compensation, growing adjusted operating income by 16%.

With Express U.S. Domestic, we grew revenue by 10% and adjusted operating income by 7%. Within Express International, we grew revenue by 17% and adjusted operating income by 52%. We are focusing our commentary today on calendar Q3, covering the July through September period. However, given it has been four months since we last reported earnings, it's also important to acknowledge the strength, as expected, in our June results. Based on our performance over the four-month transition period and increased visibility into the remainder of the calendar year, we are raising and tightening our CY 2026 outlook to $18 to $18.60. The midpoint of this range implies 23% adjusted earnings per share growth year over year for the full year.

Additionally, we expect to generate approximately $4 billion in adjusted free cash flow this calendar year. Consistent with our strategy, B2B service drove the majority of our quarterly revenue growth, reflecting strong execution by our commercial and operations teams. Our expanding capabilities across key verticals are enabling us to address more of our customers' logistic needs, unlocking air freight demand from traditionally parcel-centric customers. For example, we drove a 15-fold increase in aircraft engine moves and won new air freight business with an AI data center customer after more than a 40-year largely parcel-centric relationship. Differentiation is increasingly centered on deep customer relationships and tailored service experiences, positioning us to capture more freight volume as we address customers' needs beyond parcel. Our network transformation initiatives remain on track. We now have nearly 65% of eligible volume flowing through about 630 Network 2.0 optimized stations.

Additionally, we have closed more than 260 stations. Combined with our effective commercial strategy, this network optimization is leading to tighter capacity utilization across our surface network. We continue to expect Network 2.0 progress to translate to nearly $1 billion of Network 2.0 and associated One FedEx savings by the end of this calendar year, and a cumulative $2 billion by the end of 2027. In Europe, we are replacing a fragmented domestic structure with a lean, digitally enabled network built for high-margin cross-border flow and long-term European market competitiveness. This includes simplifying the service we provide our customers and operating as one integrated, modernized network. In January, we announced a transformation program for our domestic French operations, and we recently finished our social consultation process there. As of this month, we closed 17 French stations.

We also modernized two hubs and 16 key stations with advanced sorting automation and equipped 32 facilities with new tracking and visibility technology. In Italy, similar to France, we are fundamentally simplifying our operating model to prioritize higher-value international B2B and export services. As part of this process, we are transitioning from an eight-hub footprint to a highly streamlined three-hub model and actively reducing our station count. In June, we reached an important milestone when we consolidated two Milan area stations into a newly upgraded facility that allows us to optimize our pickup and delivery within one of the most densely populated areas of the country. Taking these examples together, we are re-engineering the region for service and profitability at the right scale.

While a transformation of this size takes time, we are on track to achieve our target of $650 million Europe revenue improvement in international adjusted operating income by end of 2029. The size and scope of our global end-to-end network, combined with the vast amount of data we generate, allows us to provide customers with actionable insights and visibility tools to better manage their own supply chains. These interactions, in turn, present us with incremental revenue opportunities, creating an unrivaled virtuous cycle. Demonstrating the unique power of our physical and digital networks, we recently announced a collaboration with the U.S. Army. Our team of logistics and technology experts is supporting a sweeping modernization of the Army's U.S. non-tactical logistics networks, supply chain procedures, and organic industrial-based sites.

This is just one example of our leadership role in logistics orchestration, which we view as a new market opportunity that complements our traditional shipping business. When it comes to physical AI, our network is already one of the most automated in the world. We are making notable strides in automating our load and unload operations to help create a safer and more efficient environment for our team members. For example, in collaboration with Dexterity, we are deploying robotic loaders at our Hagerstown, Maryland hub to support peak and post-peak operations, allowing us to prove this technology in the coming months. As we head into peak, I want to thank Team FedEx for their continued hard work. I remain very excited about the momentum in our business as we serve our customers with excellence, generate significant free cash flow, and create value for our stockholders.

Before I turn the call over to Brie, I want to welcome Jamere Jackson, whom we announced on Monday as our next chief financial officer, effective November 30. Jamere brings a wealth of experience, having served as CFO at several public companies. Most recently, he served as CFO of AutoZone, where his responsibilities also included leadership of store development, providing a valuable combination of financial and operational experience. I look forward to working with Jamere as we continue to execute on the strategic priorities we outlined at our Investor Day in February. I also want to offer my sincere thanks to Claude Russ for his extraordinary leadership as interim chief financial officer. Over the past five months, his commitment to FedEx, our team members, and our stockholders has helped ensure a seamless transition while continuing to move our strategic priorities forward.

Claude, thank you for your partnership during this important period. I am deeply appreciative. Now, over to Brie.