narrative.md

Published October 9, 2026

# FedEx Corporation (FDX) — Business, Risks, and Management's Discussion, Fiscal 2026

FedEx's fiscal 2026 is the twelve months ended May 31, 2026. Unless a passage says otherwise, "2026" and "fiscal 2026" mean that year, "fiscal 2025" means the year ended May 31, 2025, and amounts are as reported under U.S. GAAP. FedEx changed its fiscal year end to December 31 effective June 1, 2026, so fiscal 2026 is the last May-year FedEx will report; amounts the company has recast to calendar years are labelled as such where they appear below.

## Business

*Source: FY2026 Form 10-K (fiscal year ended May 31, 2026), accession 0001048911-26-000105.*

FedEx sells time-definite and day-definite transportation of packages and freight to businesses and consumers worldwide, and it earns most of its money on per-shipment shipping charges. The core is Federal Express, which runs an integrated air-ground network that reaches more than 220 countries and territories. It earns base rates set by service, origin, destination, weight, and size, plus indexed fuel surcharges and Demand surcharges. In fiscal 2026 the Federal Express segment produced $82.27 billion of FedEx's $94.72 billion consolidated revenue. U.S. domestic package services (overnight, deferred, and FedEx Ground commercial and home delivery) contributed $54.64 billion, international export packages $15.56 billion, international domestic (intra-country) packages $4.73 billion, and freight $6.06 billion.

The network behind that revenue is very large. As of May 31, 2026, Federal Express had about 452,000 employees, 700 aircraft (the world's largest all-cargo air fleet), more than 180,000 motorized vehicles, and about 84,000 drop-off locations, including more than 15,000 Walgreens and Dollar General stores. It also contracts with about 5,300 independent service providers for some linehaul and pickup-and-delivery work. The Memphis hub is the center of the hub-and-spoke system, with a second national air hub in Indianapolis. Across the enterprise FedEx employed about 300,000 permanent full-time and 230,000 permanent part-time workers, and it handles more than 18 million shipments a day.

**How the business is organized now.** FedEx completed the spin-off of its less-than-truckload (LTL) freight business, FedEx Freight, on June 1, 2026, the day after fiscal 2026 ended. Fiscal 2026 results therefore still consolidate FedEx Freight as a segment. From June 1, 2026 FedEx reports two segments, which together make up Federal Express:

- **Express U.S. Domestic** covers U.S. overnight package services (FedEx First Overnight, Priority Overnight, Standard Overnight), deferred services (2Day, 2Day AM, Express Saver), FedEx SameDay, and overnight and deferred freight. It also includes FedEx Ground Commercial and FedEx Home Delivery for packages up to 150 pounds, plus an economy residential service. Ground service reaches 100% of the continental U.S. population, with Saturday delivery to 99% of it and Sunday delivery to nearly two-thirds.
- **Express International** covers international export services (International First, Priority, Priority Express, Economy, and the e-commerce product International Connect Plus), domestic pickup-and-delivery inside countries such as Canada, the U.K., France, Germany, Italy, Mexico, Brazil, China, and India, international freight, and FedEx Logistics. FedEx Logistics (customs brokerage, ocean and air freight forwarding, managed transportation) moved into this segment from "Corporate, other, and eliminations."
- **Corporate, other, and eliminations** holds FedEx Dataworks (the data and AI platform, about 200 employees), FedEx Office (about 2,000 customer-facing stores and about 12,000 employees), and FedEx Supply Chain (contract logistics, nearly 10,000 employees at more than 150 facilities). FedEx agreed on July 1, 2026 to sell FedEx Supply Chain to CMA CGM Group for $1.4 billion (see Subsequent events).

**The transformation program.** Management describes FedEx as moving "from a collection of separate but powerful operations to one integrated" network with a structurally lower cost to serve. FedEx Ground was merged into Federal Express on June 1, 2024 ("one FedEx"). Network 2.0 consolidates U.S. and Canadian sortation facilities, pickup-and-delivery routes, and linehaul into one surface network. As of May 31, 2026 it was in place at about 410 U.S. and Canadian locations, was complete in Canada, and is due to be finished in the U.S. by the end of calendar 2027. Tricolor redesigns the intercontinental air network into three systems: priority parcel, priority freight, and deferred parcels and freight. In January 2026 FedEx also began operational transformation programs in certain international domestic operations. These programs may cut about 5,000 operational positions over roughly 18 months, at an expected pre-tax cost of $225 million to $325 million.

**Pricing and fuel.** Federal Express raised list prices by an average of 5.9% on January 5, 2026. Fuel surcharges are indexed and adjusted weekly, and FedEx does not hedge jet fuel. Federal Express jet fuel cost $3.05 billion in fiscal 2026, or 3.2% of consolidated revenue.

**Competition.** In the U.S., the main rivals are UPS, the U.S. Postal Service, regional carriers, passenger airlines, and air freight forwarders. Internationally they are DHL, UPS, DPD, GLS, postal authorities, and freight forwarders, many of them government-owned or subsidized. FedEx singles out Amazon as both a customer and a competitor: Amazon has built its own hubs, aircraft, and vehicles, offers its delivery network to third parties, and has started an LTL freight service.

**Labor.** U.S. FedEx employees are covered by the Railway Labor Act, which requires nationwide bargaining units and mediation before any strike. Apart from the pilots, the U.S. and Canadian workforce is not unionized. Federal Express pilots, represented by ALPA, ratified a new collective bargaining agreement on June 9, 2026. It took effect June 29, 2026 and becomes amendable in December 2030.

## Risk factors

*Source: FY2026 Form 10-K, Item 1A, accession 0001048911-26-000105.*

The 10-K's risk discussion centers on a cyclical, high-fixed-cost network exposed to trade policy and fuel, a multi-year restructuring that has to deliver its savings, and the aftermath of the spin-off. The most consequential risks:

- **Trade policy and the macro cycle.** Shipment volumes track the production and purchase of goods. FedEx says that the decline in U.S. consumer-goods imports since late 2022, weak industrial production, and recent changes in U.S. and international trade policy have weakened conditions across the transportation industry. It expects inflation and elevated interest rates to keep hurting results through calendar 2026. Its relatively high fixed costs, especially in the air network, make it hard to cut capacity quickly when volumes shift.
- **Tariff refunds.** The U.S. Supreme Court struck down IEEPA tariffs on February 20, 2026. As of May 31, 2026 FedEx had filed refund claims totaling $3.3 billion and received about $800 million in cash, and it had recorded a $749 million liability for refunds owed to customers. Fourteen nationwide class actions seek refunds of these tariffs from FedEx; thirteen have been consolidated in Tennessee federal court and one is pending in the Court of International Trade. FedEx says it cannot estimate the financial impact, but that the impact could reasonably be material.
- **Transformation execution.** Integrating the legacy Federal Express and FedEx Ground networks, rolling out Network 2.0, Tricolor, and the international restructuring could cost more, save less, or take longer than planned. The risks include customer losses, union organizing, disputes with service providers, and legal or regulatory challenges. FedEx also lists a separate risk that it may miss the calendar 2029 financial targets it announced on February 12, 2026.
- **Spin-off.** FedEx may not realize the expected benefits of separating FedEx Freight. It relies on FedEx Freight to honor cross-indemnities and transition-services, tax, and other agreements, and both companies keep using shared brands, so damage to FedEx Freight's reputation could spread to FedEx. The spin-off's tax-free treatment rests on an IRS private letter ruling and an opinion of counsel. If it were held taxable, FedEx and its stockholders could owe significant taxes, and FedEx Freight might not have the resources to indemnify FedEx. FedEx also holds a 19.9% stake in FedEx Freight that it must divest within 24 months, and the stake's market value is outside its control.
- **InPost minority investment.** As part of a consortium, FedEx agreed to take InPost private and would hold 37% of it. FedEx would not control InPost, so it could be unable to influence key decisions. Regulatory delays, or a failure to finalize the planned commercial agreements, could reduce the investment's value.
- **Cybersecurity and AI.** FedEx operates a large, aging technology estate while moving from mainframes to the cloud and depends heavily on third parties. That leaves it exposed to breaches, ransomware, and outages. Criminals have repeatedly taken over customer accounts to divert shipments. FedEx also notes that growing use of AI carries risks of flawed outputs and of regulatory and security problems.
- **Self-insurance and "nuclear" verdicts.** FedEx self-insures workers' compensation, vehicle accident, cargo, and general liability claims up to certain limits. Self-insurance accruals were $6.38 billion at May 31, 2026, up from $5.89 billion a year earlier. Excess coverage is becoming scarcer and more expensive, and outsized jury awards in trucking cases could exceed FedEx's aggregate limits.
- **Labor and contractor status.** FedEx is defending joint-employer lawsuits claiming it should be treated as the employer of drivers who work for its contracted service providers. Network 2.0 could invite further challenges. Losing coverage under the Railway Labor Act, or changes in labor law, would expose the network to local work stoppages. Another risk is the possibility of pilot flight-and-duty-time rules being extended to all-cargo carriers.
- **Competition.** Pricing pressure from competitors willing to accept thin margins, government-subsidized carriers, and shippers building their own delivery networks (Amazon especially) could limit FedEx's ability to raise rates or keep fuel surcharges.
- **Capital intensity and the fleet.** FedEx commits to aircraft years ahead of need, so a wrong volume forecast leaves it with excess capacity or service shortfalls. The 10-K points to the aircraft impairments recorded in fiscal 2026 and 2025. In November 2025 the FAA grounded the entire MD-11 fleet; FedEx began returning those aircraft to service in May 2026 and expects all of them back by the end of calendar 2026.
- **Tax positions.** FedEx has recorded a cumulative $249 million benefit from its successful challenge to a transition-tax regulation under the Tax Cuts and Jobs Act. The government's appeal is before the Sixth Circuit, with oral argument scheduled for July 30, 2026, and FedEx would have to reverse the benefit if it ultimately loses.
- **Climate regulation and weather.** Rules on aircraft emissions, emissions trading, and sustainable aviation fuel, CORSIA in particular, are expected to raise operating costs. A severe weather event or disruption at the Memphis World Hub could halt large parts of the network.
- **Pension volatility.** Mark-to-market pension accounting adds swings to earnings. Fiscal 2026 included a $647 million pre-tax gain.

## Management's discussion of fiscal 2026

*Source: FY2026 Form 10-K, Item 7, accession 0001048911-26-000105, unless noted. Adjusted (non-GAAP) figures are from the fourth-quarter earnings release furnished on Form 8-K, accession 0001048911-26-000050.*

**Headline results.** Revenue grew 8% to $94.72 billion from $87.93 billion. Operating income grew 5% to $5.46 billion from $5.22 billion, while operating margin slipped to 5.8% from 5.9%. Net income was $4.43 billion versus $4.09 billion, and diluted EPS was $18.55 versus $16.81. On the company's adjusted basis, operating income was $6.61 billion versus $6.12 billion and diluted EPS was $20.24 versus $18.19. Adjusted operating margin was 7.0% in both years.

**Why revenue rose.** Growth came mainly from higher base yields on package services, more U.S. domestic package volume, higher fuel surcharges, and favorable exchange rates. The expiry of the U.S. Postal Service contract, fewer FedEx Freight shipments, and trade-policy changes worked the other way. Within Federal Express (revenue up 9% to $82.27 billion):

- U.S. domestic package revenue rose 11% to $54.64 billion. Average daily volume rose 5% to 14.6 million packages and composite yield rose 6% to $14.75, helped by residential e-commerce growth and a focus on revenue quality.
- International priority package yield rose 13% to $66.34 on heavier packages, currency, and fuel. International economy yield fell 2%. International export volume rose 1%, as stronger business-to-business demand in Europe offset trade-policy effects and weaker Asia Pacific demand.
- U.S. freight revenue fell 18% and U.S. average daily freight pounds fell 32% after the U.S. Postal Service contract expired.

**Why profit grew less than revenue.** Federal Express segment operating income rose 21% to $5.91 billion, and its margin improved to 7.2% from 6.5%, on revenue growth and structural cost cuts from Network 2.0, Tricolor, and the international programs. Higher wage rates and incentive pay, higher purchased transportation, trade-policy effects (including higher credit losses and customs brokerage fees after the de minimis exemption ended), the loss of the U.S. Postal Service contract, and the MD-11 grounding partly offset those gains.

FedEx Freight segment operating income fell 59% to $616 million from $1.49 billion, and its margin fell to 7.0% from 16.7%. Revenue slipped 1% to $8.80 billion and average daily shipments fell 4% in a weak industrial and excess-capacity LTL market, while spin-off costs weighed on profit: $492 million of separation costs plus higher salaries, software, and professional fees. The Corporate, other, and eliminations loss narrowed to $1.07 billion from $1.16 billion.

**Items that affected comparability.** Together these items lowered fiscal 2026 net income by $405 million:

- Spin-off costs: $744 million ($589 million after tax, $2.46 per diluted share), compared with $56 million in fiscal 2025.
- Business optimization costs: $366 million, down from $756 million.
- Fiscal year change costs: $33 million.
- Aircraft impairments: $23 million, for retiring 10 aircraft (five MD-11s, four 757-200s, and one A300-600).
- A $12 million gain on an international regulatory matter.
- A $647 million pre-tax mark-to-market pension gain ($497 million after tax, $2.08 per diluted share), driven by higher asset returns.

The effective tax rate was 23.5%, down from 24.8%, helped by a $100 million benefit from reducing a valuation allowance in Brazil.

**Cost savings.** FedEx said it exceeded its $1 billion target for transformation-related structural cost savings in fiscal 2026. Its European workforce reduction, which affected about 1,400 employees, is complete and is expected to save about $150 million a year from calendar 2026.

**Cash flow and capital allocation.** Operating cash flow rose to $8.93 billion from $7.04 billion. Capital expenditures fell 6% to $3.81 billion, mainly on lower aircraft and vehicle spending. The earnings release calls capital spending of 4.0% of revenue the lowest level in FedEx history. FedEx returned about $2.2 billion to stockholders: $776 million of buybacks (3.3 million shares at an average $233.07) and $1.37 billion of dividends. Financing inflows included FedEx's €850 million of euro notes issued in July 2025 and FedEx Freight Holding's $3.7 billion of notes issued in February 2026 to fund its pre-spin dividend to FedEx.

**Balance sheet and liquidity.** Cash and equivalents were $13.3 billion at May 31, 2026, up from $5.5 billion. The balance included the $4.1 billion cash dividend from FedEx Freight and about $800 million of tariff refunds held for customers; $4.3 billion was held in foreign jurisdictions. Long-term debt, including the current portion and finance leases, was $24.97 billion, and $750 million of commercial paper was outstanding. About $2.8 billion remained available under the $3.5 billion of credit agreements. Ratings are BBB (S&P) and Baa2 (Moody's), both with stable outlooks. Goodwill of $6.7 billion passed its annual review without impairment.

**Outlook (calendar 2026).** The 10-K expects revenue and operating profit to keep growing through the rest of calendar 2026 in both new segments. It expects yield and volume gains to more than offset higher wage and purchased-transportation rates, the cost of the new pilot contract, and inflation. FedEx expects $1.0 billion of structural cost reduction from Network 2.0 and one FedEx by the end of calendar 2026, capital spending of about $3.9 billion (about $1.0 billion of it on aircraft; the projection excludes FedEx Freight), and $475 million of voluntary pension contributions.

The fourth-quarter earnings release (accession 0001048911-26-000050) gives a calendar 2026 forecast measured against recast calendar 2025 results from continuing operations, a baseline that excludes FedEx Freight:

- Revenue growth of about 11%.
- Diluted EPS from continuing operations of $16.55 to $17.75, or $16.90 to $18.10 on an adjusted basis.
- An effective tax rate of about 23%.
- Capital spending of $3.9 billion.

In March the company had guided fiscal 2026 to 6.0% to 6.5% revenue growth and $19.30 to $20.10 of adjusted EPS (accession 0001048911-26-000010). The year finished at 8% reported revenue growth and $20.24 of adjusted EPS.

## Current quarter

### Fourth quarter of fiscal 2026 (three months ended May 31, 2026)

*Source: fourth-quarter earnings release furnished on Form 8-K, accession 0001048911-26-000050. FedEx files no separate quarterly report for its fiscal fourth quarter. The quarter's results are the FY2026 Form 10-K full year (accession 0001048911-26-000105) less the nine months reported in the third-quarter 10-Q (accession 0001048911-26-000011).*

Revenue for the quarter was $25.0 billion, up from $22.2 billion a year earlier. Reported profit fell even so. Operating income was $1.55 billion versus $1.79 billion, operating margin 6.2% versus 8.1%, net income $1.60 billion versus $1.65 billion, and diluted EPS $6.60 versus $6.88. The decline came from items concentrated in the quarter: $298 million of spin-off costs, $204 million of business optimization costs, $23 million of aircraft impairments, and $13 million of fiscal-year-change costs. The year's $647 million pre-tax mark-to-market pension gain, booked in the quarter, worked in the opposite direction. Excluding all of these items, adjusted operating income improved to $2.09 billion from $2.02 billion and adjusted EPS to $6.31 from $6.07. The company credits stronger U.S. domestic and International Priority package yields, transformation savings, and higher U.S. domestic and international export package volume.

Federal Express segment operating income was $1.65 billion (7.7% margin), compared with $1.59 billion (8.4%) a year earlier. FedEx Freight earned $158 million (6.6% margin), after $205 million of spin-off costs, in its final quarter as a FedEx segment.

### Third quarter of fiscal 2026 (three months ended February 28, 2026)

*Source: Form 10-Q for the quarter ended February 28, 2026, accession 0001048911-26-000011.*

Third-quarter results showed the same pattern seen across the year: a strong express business offset by a weakening freight segment. Revenue rose 8% to $24.00 billion. Operating income rose 4% to $1.35 billion, with margin at 5.6% versus 5.8%. Net income rose 16% to $1.06 billion and diluted EPS to $4.41 from $3.76. A 16.4% tax rate, including a $99 million benefit from reducing a foreign valuation allowance, lifted net income.

- Federal Express revenue rose 10% to $21.15 billion and its operating income rose 21% to $1.57 billion (7.4% margin). U.S. domestic package volume grew 5% and composite yield 5%. International priority yield rose 11%, and international export volume grew 2% on business-to-business demand in Asia Pacific and Europe.
- FedEx Freight operating income fell to $8 million from $261 million. Revenue fell 5%, average daily shipments fell 6%, and the segment carried $126 million of separation costs.
- Quarterly spin-off costs totaled $195 million.

In the quarter FedEx Freight Holding issued $3.7 billion of senior notes, which the company held as restricted cash at quarter end. FedEx Freight Holding also put in place a $1.2 billion revolving credit facility and a $600 million delayed-draw term loan. FedEx joined the InPost consortium on February 9, 2026. After the quarter, the March earnings release raised the fiscal 2026 outlook.

## Subsequent events

*Sources: FY2026 Form 10-K Note 20 ("Subsequent Events") and Liquidity Outlook, accession 0001048911-26-000105, and the Forms 8-K cited below.*

These events after the fiscal year end (May 31, 2026) change the shape of the company and its balance sheet:

- **FedEx Freight spin-off completed (June 1, 2026).** FedEx distributed 80.1% of FedEx Freight Holding Company, Inc. to its stockholders pro rata. Each holder of record on May 15, 2026 received one FedEx Freight share for every two FedEx shares, in addition to keeping their FedEx shares. FedEx Freight trades on the NYSE as "FDXF." FedEx kept 19.9%, which it will carry at fair value with changes recognized in earnings and expects to fully monetize within 24 months. FedEx Freight funded a cash dividend of about $4.1 billion to FedEx from its $3.7 billion February 2026 notes and its delayed-draw term loan, and FedEx was released from its guarantee of those notes. From June 1, 2026, FedEx Freight is reported as discontinued operations. The fiscal 2026 statements in the 10-K still consolidate it as a segment. (8-Ks: accession 0001104659-26-060233, May 13, 2026; accession 0001104659-26-068519, June 1, 2026.)
- **Debt repurchase with the spin-off dividend (July 2026).** On June 25, 2026 FedEx launched cash tender offers capped at $4.15 billion of aggregate purchase price for 19 series of its notes. It accepted $4,857,412,000 of principal for purchase at early settlement on July 14, 2026; the 10-K describes the total as about $4.9 billion. The twelve highest-priority series were accepted in full, the 5.100% notes due 2044 were accepted in part (a proration factor of about 41.3%), and the remaining six series were not accepted. The purchase was paid for with the $4.1 billion Freight dividend plus cash on hand. (8-Ks: accession 0001104659-26-077558; accession 0001104659-26-082672.)
- **New bond issues (September 14, 2026).** FedEx issued €1.1 billion of 4.000% notes due 2030, €900 million of 4.625% notes due 2034, and $1.1 billion of 5.750% notes due 2036. (8-K: accession 0001104659-26-107511.)
- **Sale of FedEx Supply Chain to CMA CGM ($1.4 billion).** FedEx announced on July 1, 2026 that it will sell FedEx Supply Chain to CMA CGM Group for $1.4 billion as part of streamlining its portfolio. The sale is expected to close in the second half of calendar 2026, after which the business will leave "Corporate, other, and eliminations." No filing through September 29, 2026 reports the sale as completed.
- **InPost investment still pending.** The consortium's all-cash offer for InPost (€15.60 per share, cum dividend) still needs regulatory approvals and other conditions to be met. FedEx's 37% stake is valued at about €2.20 billion in the 10-K and about $2.6 billion in the February 9, 2026 8-K (accession 0001104659-26-012106). Completion is expected in the second half of calendar 2026.
- **Pilot contract.** Under the ALPA agreement ratified June 9, 2026, pilot pay rises by an initial 40% and work rules and pension terms change. It also includes a one-time $625 million ratification payment, which was accrued at May 31, 2026 and is expected to be paid in the September 2026 quarter.
- **Buybacks and dividend.** In June 2026 FedEx bought back $0.3 billion of stock in the open market and entered a $1.0 billion accelerated share repurchase due to finish by the end of September 2026, using up the 2024 program. On July 20, 2026 the board authorized a new $5.0 billion program. On June 8, 2026 the board declared a quarterly dividend of $1.22 per share ($292 million, paid July 7, 2026). The previous quarterly dividend was $1.45 per share. The earnings release describes the new rate as a 5% increase in the annual dividend after adjusting for the spin-off.
- **Tariff refunds.** FedEx has kept filing refund claims and received material refunds after May 31, 2026, which it plans to pass on to customers. Amounts received through July 20, 2026 had an immaterial effect on operating results.
- **Fiscal year change and recast history.** FedEx will report the seven-month transition period from June 1 to December 31, 2026 on a transition report on Form 10-K, then report on calendar years starting with 2027. A Form 10-Q for July 1 to September 30, 2026 will include separate data for June. On July 21, 2026 FedEx furnished unaudited supplemental history recast to calendar years, with FedEx Freight as discontinued operations and the two new segments (8-K, accession 0001048911-26-000108). The company says the recast is not a restatement of previously issued financial statements. On that recast basis, calendar 2025 revenue from continuing operations was $82.46 billion: $54.40 billion from Express U.S. Domestic, $25.34 billion from Express International, and $2.73 billion from Corporate, other, and eliminations. Operating income was $4.55 billion and diluted EPS from continuing operations was $14.62.
- **Leadership.** John W. Dietrich stepped down as CFO on June 1, 2026. Claude F. Russ became interim chief financial officer and interim chief accounting officer the same day. Scott Ray became Chief Operating Officer for the U.S. and Canada on June 1, 2026, succeeding John A. Smith, who left to become chief executive of FedEx Freight. (8-Ks: accession 0001104659-26-007986, January 29, 2026; accession 0001104659-26-042617; accession 0001104659-26-063198; accession 0001104659-26-068519.)