FedEx Corporation

03/19/2026 | Press release | Distributed by Public on 03/19/2026 14:16

Quarterly Report for Quarter Ending February 28, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following Management's Discussion and Analysis of Results of Operations and Financial Condition ("MD&A") describes the principal factors affecting the results of operations, liquidity, capital resources, and critical accounting estimates of FedEx Corporation ("FedEx"). This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2025 ("Annual Report"). Our Annual Report includes additional information about our significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results.
We provide a broad portfolio of transportation, e-commerce, and business services, offering integrated business solutions utilizing our flexible, efficient, and intelligent global network. Our primary operating companies are Federal Express Corporation ("Federal Express"), the world's largest express transportation company and a leading North American provider of small-package ground delivery services, and FedEx Freight, Inc. ("FedEx Freight"), a leading North American provider of less-than-truckload ("LTL") freight transportation services. See "Reportable Segments" for further discussion. Additional information on our businesses can be found in our Annual Report.
Federal Express operates a unified, fully integrated air-ground express network under the respected FedEx brand. FedEx Freight provides LTL freight transportation services as a separate subsidiary. Federal Express and FedEx Freight represent our major service lines and constitute our reportable segments.
In December 2024, we announced that FedEx's Board of Directors decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company. The transaction, which will be implemented through the spin-off of shares of the new company to FedEx stockholders, is expected to be tax-free for U.S. federal income tax purposes for FedEx stockholders and be completed by June 1, 2026.
In January 2025, the Board of Directors approved a change in FedEx's fiscal year end from May 31 to December 31. The planned fiscal year change is expected to be effective June 1, 2026.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2026 or ended May 31 of the year referenced, and comparisons are to the corresponding period of the prior year. References to our transportation segments include, collectively, the Federal Express segment and the FedEx Freight segment.
The key indicators necessary to understand our operating results include:
•the overall customer demand for our various services based on macroeconomic factors and the global economy;
•the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size;
•the mix of services purchased by our customers;
•the prices we obtain for our services, primarily measured by yield (revenue per package or pound, revenue per shipment, or hundredweight for LTL freight shipments);
•our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and
•the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges.
Trends Affecting Our Business
The following trends significantly affect the indicators discussed above, as well as our business and operating results. See the risk factors identified under Part I, Item 1A. "Risk Factors" in our Annual Report, as updated by our quarterly reports on Form 10-Q, for more information. Additionally, see "Results of Operations- Consolidated Results - Separation and Other Costs - Business Optimization Costs and - Outlook" and "Financial Condition - Liquidity Outlook" below for additional information on efforts we are taking to mitigate adverse trends.
Macroeconomic Conditions
While macroeconomic risks apply to most companies, we are particularly vulnerable. The transportation industry is highly cyclical and especially susceptible to trends in economic activity. Our primary business is to transport goods, so our business levels are directly
-25-
tied to the purchase and production of goods and the rate of global trade growth. The decline in U.S. imports of consumer goods that started in late 2022, along with slowed global industrial production, has contributed to weakened business conditions for the transportation industry. Consequently, this environment has led to lower shipments at FedEx Freight, negatively affecting our results in the third quarter and nine months of 2026.
Global Trade Policies
Since the third quarter of 2025 there have been significant changes within the global trade environment, such as the August 2025 removal of the de minimis exemption for goods imported into the U.S. from countries other than China. The uncertain and evolving global trade environment negatively affected our results in the third quarter and nine months of 2026.
Additionally, on February 20, 2026 the U.S. Supreme Court issued a decision invalidating tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). In response to the Supreme Court's decision, new Executive Orders were announced aimed at restructuring U.S. tariff policy and exploring alternative statutory authorities under which to impose or maintain tariffs. These actions have contributed to continued uncertainty and volatility in the global trade environment. The financial impact of this ruling is uncertain, as it is unclear to what extent duties will be refunded by CBP, what processes will govern such refunds, or if we can fully collect related accounts receivable. We are evaluating the impact of these developments on our business and financial statements. However, at this time, we cannot reasonably estimate the financial impact, and no adjustments have been recorded. See "Other Business Matters" below for information on related litigation.
MD-11 Operational Impact
In November 2025, the U.S. Federal Aviation Administration issued an emergency Airworthiness Directive to address a potentially unsafe condition on all Boeing MD-11 aircraft, prohibiting further flight until the aircraft are inspected and all corrective actions are performed. As a result, during the third quarter and nine months of 2026, we experienced operational impacts related to the grounding of our MD-11 aircraft fleet which had an impact on our financial results.
Inflation and Interest Rates
During the third quarter and nine months of 2026, global inflation declined year-over-year but continued to be elevated. Additionally, global interest rates declined modestly in an effort to curb inflation. We are experiencing pressure on demand for our transportation services, particularly our international export package services, as elevated inflation and interest rates continue to negatively affect consumer and business spending. We expect inflation and elevated interest rates to continue to negatively affect our results of operations for the remainder of 2026. Additional changes in trade policy and the global trade environment could also exacerbate global inflation and interest rates.
Fuel
We must purchase large quantities of fuel to operate our aircraft and vehicles, and the price and availability of fuel is beyond our control and can be highly volatile. The timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges can significantly affect our operating results either positively or negatively in the short-term. During the third quarter and nine months of 2026, higher fuel prices positively affected yields due to increased fuel surcharges and negatively affected fuel expense at Federal Express.
Geopolitical Conflicts
Given the nature of our business and global operations, geopolitical conflicts and instability may adversely affect our business and results of operations. While we do not expect ongoing geopolitical conflicts between Russia and Ukraine and in the Middle East, or escalations or expansions thereof, to have a direct material effect on our business or results of operations, the broader consequences, including increased fuel prices and volatility in shipping patterns, are adversely affecting the global economy and may also have the effect of heightening other risks disclosed under Part II, Item 1A. "Risk Factors."
Other Business Matters
Following the U.S. Supreme Court ruling on February 20, 2026 that certain tariffs imposed under the IEEPA were unlawful, on February 23, 2026, FedEx filed a lawsuit in the U.S. Court of International Trade against the U.S. Customs and Border Protection ("CBP"), the CBP commissioner, and the United States of America seeking a full refund of all IEEPA tariffs that FedEx has paid to the United States.
Additionally, five class action lawsuits seeking refunds of IEEPA tariffs from FedEx were filed in U.S. district courts in South Carolina, Florida, New York, Tennessee, and Delaware.
-26-
RESULTS OF OPERATIONS
Many of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes. The line item "Other" includes costs associated with outside service contracts (such as information technology services, facilities services, security, and temporary labor), insurance, professional fees, and credit losses.
CONSOLIDATED RESULTS
The following tables compare summary operating results and changes in revenue and operating income (loss) (dollars in millions, except per share amounts) for the periods ended February 28, 2026 and 2025:
Three Months Ended Percent Nine Months Ended
Percent
2026 2025 Change 2026 2025
Change
Revenue $ 24,000 $ 22,160 8 $ 69,713 $ 65,706 6
Operating income (loss):
Federal Express segment 1,572 1,294 21 4,261 3,299 29
FedEx Freight segment 8 261 (97) 458 1,012 (55)
Corporate, other, and eliminations (232) (263) 12 (807) (887) 9
Consolidated operating income $ 1,348 $ 1,292 4 $ 3,912 $ 3,424 14
Operating margin:
Federal Express segment 7.4 % 6.7 % 70 bp 7.0 % 5.9 % 110 bp
FedEx Freight segment 0.4 % 12.5 % (1,210) bp 7.2 % 15.3 % (810) bp
Consolidated operating margin 5.6 % 5.8 % (20) bp 5.6 % 5.2 % 40 bp
Consolidated net income $ 1,056 $ 909 16 $ 2,836 $ 2,444 16
Diluted earnings per share $ 4.41 $ 3.76 17 $ 11.91 $ 9.99 19
Year-over-Year Changes
Revenue
Operating Income (Loss)
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
Federal Express segment $ 1,973 $ 4,376 $ 278 $ 962
FedEx Freight segment (98) (208) (253) (554)
Corporate, other, and eliminations (35) (161) 31 80
$ 1,840 $ 4,007 $ 56 $ 488
Overview
Operating income increased 4% in the third quarter and 14% in the nine months of 2026 primarily due to higher yields for our U.S. domestic and international priority package services, continued structural cost reductions from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and increased U.S. domestic package demand at Federal Express. Operating income for the third quarter and nine months of 2026 was negatively affected by higher salaries and employee benefit expense, the financial impact of global trade policy changes, increased costs related to the planned spin-off of FedEx Freight, higher purchased transportation rates, and the grounding of our MD-11 fleet. The increase in salaries and employee benefits was primarily driven by higher variable incentive compensation, wage rates, and employee benefit expenses.
Operating income includes separation and other costs of $202 million in the third quarter and $460 million in the nine months of 2026. These costs are related to the planned spin-off of FedEx Freight and fiscal year change and are primarily related to professional services and an employee incentive plan. In the third quarter of 2025, we incurred $23 million of costs related to the planned spin-off, consisting of $18 million included in other, net, related to a debt exchange offer and consent solicitation transaction and $5 million of professional fees included in separation and other costs. See the "Separation and other costs" section of this MD&A for more information.
Operating income includes business optimization expenses of $65 million in the third quarter and $162 million in the nine months of 2026 related to ongoing network optimization through Network 2.0, international operational transformation initiatives, and structural and overhead cost-reduction initiatives under our DRIVE program commenced in prior years. We incurred business optimization costs
-27-
of $179 million in the third quarter and $633 million in the nine months of 2025 related to our transformation initiatives. See the "Business Optimization Costs" section of this MD&A for more information.
During the nine-month period ended February 28, 2026, we repurchased 3.3 million shares of FedEx common stock through open market transactions at an average price of $233.07 per share for a total of $776 million. We did not repurchase common stock in the three-month period ended February 28, 2026. Share repurchases had a benefit of $0.12 per diluted share for the first nine months of 2026. As of February 28, 2026, $1.3 billion remained available to be used for repurchases under the stock repurchase program approved by our Board of Directors in 2024. See Note 1of the accompanying unaudited condensed consolidated financial statements, "Financial Condition - Liquidityand - Liquidity Outlook" below, and Part II, Item 2. "Unregistered Sales of Equity Securities and Use of Proceeds"of this Form 10-Q for additional information.
The following graphs for Federal Express and FedEx Freight show selected volume trends (in thousands)calculated on a 5-day-per-week basisover the five most recent quarters:
(1)International domestic average daily package volume relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services.
(2)International average daily freight pounds relate to our international priority and economy services.
-28-
The following graphs for Federal Express and FedEx Freight show selected yield trends over the five most recent quarters:
(1)International export revenue per package relates to our international priority and economy services. International domestic revenue per package relates to our international intra-country operations.
(2)International freight revenue per pound relates to our international priority and economy services.
-29-
Revenue
Revenue increased 8% in the third quarter and 6% in the nine months of 2026 primarily due to U.S. domestic and international priority base yield improvements, increased U.S domestic package volume, and favorable exchange rates at Federal Express, partially offset by lower shipments at FedEx Freight and decreased fuel surcharges at Federal Express.
Federal Express segment revenue increased 10% in the third quarter and 8% in the nine months of 2026 primarily due to higher U.S. domestic and international priority package base yields, increased U.S. domestic package volumes, and favorable exchange rates, partially offset by the negative impacts from global trade policy changes and lower fuel surcharges.
FedEx Freight segment revenue decreased 5% in the third quarter and 3% in the first nine months of 2026 primarily due tolower volume resulting from macroeconomic conditions, partially offset by increased weight per shipment.
Revenue at Corporate, other, and eliminations decreased in the first nine months of 2026 primarily due to lower demand at FedEx Logistics, Inc. ("FedEx Logistics").
Operating Expenses
The following table compares operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended February 28, 2026 and 2025:
Three Months Ended
Percent
Nine Months Ended
Percent
2026 2025
Change
2026 2025
Change
Operating expenses:
Salaries and employee benefits $ 8,819 $ 7,879 12 $ 25,276 $ 23,543 7
Purchased transportation 6,084 5,634 8 17,457 16,409 6
Rentals and landing fees 1,235 1,178 5 3,638 3,507 4
Depreciation and amortization 1,112 1,066 4 3,272 3,207 2
Fuel 856 889 (4) 2,618 2,911 (10)
Maintenance and repairs 771 783 (2) 2,503 2,443 2
Separation and other costs 202 5 NM 460 5 NM
Business optimization costs 65 179 (64) 162 633 (74)
Other 3,508 3,255 8 10,415 9,624 8
Total operating expenses 22,652 20,868 9 65,801 62,282 6
Operating income $ 1,348 $ 1,292 4 $ 3,912 $ 3,424 14
Percent of Revenue
Three Months Ended Nine Months Ended
2026 2025 2026 2025
Operating expenses:
Salaries and employee benefits 36.7 % 35.6 % 36.3 % 35.8 %
Purchased transportation 25.4 25.4 25.0 25.0
Rentals and landing fees 5.2 5.3 5.2 5.3
Depreciation and amortization 4.6 4.8 4.7 4.9
Fuel 3.6 4.0 3.8 4.4
Maintenance and repairs 3.2 3.6 3.6 3.7
Separation and other costs 0.8 - 0.7 -
Business optimization costs 0.3 0.8 0.2 1.0
Other 14.6 14.7 14.9 14.7
Total operating expenses 94.4 94.2 94.4 94.8
Operating margin 5.6 % 5.8 % 5.6 % 5.2 %
Salaries and employee benefits expense increased 12% in the third quarter and 7% in the nine months of 2026 primarily driven by higher variable incentive compensation, wage rates, and employee benefit expenses, and unfavorable exchange rate impacts. Purchased transportation expense increased 8% in the third quarter and 6% in the nine months of 2026 primarily due to volume-related costs to support higher package volume and contracted service provider rates. Other operating expenses increased 8% in the third
-30-
quarter and 8% in the nine months of 2026 primarily due to higher outside service contracts and professional fees, increased credit losses, and unfavorable exchange rates.
Separation and Other Costs
FedEx Freight separation
We incurred costs related to the planned spin-off of FedEx Freight of $195 million ($147 million, net of tax, or $0.61 per diluted share) in the third quarter of 2026 and $443 million ($351 million, net of tax, or $1.47 per diluted share) in the nine months of 2026. These costs primarily consist of professional services and an employee incentive plan related to the planned spin-off. Separation costs of $194 million and $440 million for the three- and nine-month periods ended February 28, 2026, respectively, are included within the "Separation and other costs" caption and separation costs of $1 million and $3 million for the three- and nine-month periods ended February 28, 2026, respectively, are included in the "Other, net" caption of the accompanying unaudited condensed consolidated statements of income. These costs are included in FedEx Freight; Corporate, other, and eliminations; and Federal Express. In the third quarter of 2025, we incurred $23 million ($17 million, net of tax, or $0.07 per diluted share) of costs related to the planned spin-off, consisting of $18 million included in the "Other, net" caption, related to the debt exchange offer and consent solicitation transactions and $5 million of professional fees included in the "Separation and other costs" caption. Costs included in the "Separation and other costs" caption for the three- and nine-month periods ended February 28, 2025 were reclassified from the "Other" caption to conform to the current period presentation. This change had no impact on total operating income or net income. These costs are included in Corporate, other, and eliminations. Additionally, "Separation and other costs, net of payments" of $4 million were reclassified from "Changes in assets and liabilities: Accounts payable and other liabilities" in the unaudited condensed consolidated statements of cash flows for the nine-month period ended February 28, 2025.
Fiscal year change
We incurred costs related to the fiscal year change of $8 million ($6 million, net of tax, or $0.02 per diluted share) in the third quarter of 2026 and $20 million ($15 million, net of tax, or $0.06 per diluted share) in the nine months of 2026. These costs were primarily related to professional fees and are included in Federal Express and Corporate, other, and eliminations. We did not incur any fiscal year change costs in the nine months of 2025.
Business Optimization Costs
Our business optimization costs relate to transformation initiatives aimed to improve long-term profitability, drive efficiency within and between our transportation segments, lower our overhead and support costs, and transform our digital capabilities. Costs included in the "Business optimization costs" caption of the accompanying unaudited condensed consolidated statements of income relate to our Network 2.0 program, our international operational transformation programs, our DRIVE initiatives commenced in prior years, and the Europe workforce reduction plan announced in June 2024.
We incurred business optimization costs of $65 million ($49 million, net of tax, or $0.21 per diluted share) in the third quarter and $162 million ($126 million, net of tax, or $0.53 per diluted share) in the nine months of 2026. These costs were primarily related to professional services, incentive payments to our contracted service providers in support of Network 2.0, and severance and are included in Federal Express and Corporate, other, and eliminations. We incurred business optimization costs of $179 million ($137 million, net of tax, or $0.56 per diluted share) in the third quarter and $633 million ($484 million, net of tax, or $1.98 per diluted share) in the nine months of 2025. These costs were primarily related to professional services and severance and are included in Federal Express and Corporate, other, and eliminations.
Network 2.0
Network 2.0 is our multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada. Through Network 2.0, we continue to consolidate our sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimized network. We have implemented Network 2.0 optimization in approximately 390 locations in the U.S. and Canada as of February 28, 2026. Service providers will handle the pickup and delivery of Federal Express packages in some locations while employee couriers will handle others. We completed Canada's implementation of Network 2.0 in the fourth quarter of 2025 and expect to complete the U.S. implementation by the end of calendar 2027.
International operational transformation programs
In January 2026, FedEx initiated operational transformation programs in certain international locations designed to modernize, streamline, and optimize international domestic operations. These transformation programs may reduce approximately 5,000 operational employees, as well as changing working locations and schedules for up to 800 operational employees and is expected to occur over approximately 18 months, subject to required consultation processes in accordance with local regulations.
-31-
We expect the combined pre-tax costs of severance benefits, legal and professional fees, and facilities-related exit costs to range from $225 million to $325 million, substantially all of which are cash expenditures. These charges are expected to be incurred through calendar year 2028 and will be recorded as business optimization expenses. In the third quarter of 2026, we incurred $16 million of costs related to this program. The timing and amount of our business optimization expenses and the related cost savings associated with this operational transformation program are dependent on local country consultation processes and regulations and negotiation social plans and may change as we revise and implement our plans.
Europe workforce reduction plan
Our workforce reduction plan in Europe to reduce structural costs announced in June 2024 is substantially complete as of February 28, 2026. The plan occurred over an 18-month period in accordance with local country processes and regulations and impacted approximately 1,400 employees across back-office and commercial functions. We expect savings from the plan to be approximately $150 million on an annualized basis beginning in calendar 2026.
We expect the pre-tax cost of the severance benefits and legal and professional fees to be provided under and related to the plan to be approximately $250 million in cash expenditures. These activities have been recorded as business optimization expenses. In the third quarter of 2026 and 2025, we incurred $2 million and $44 million, respectively, of costs related to this plan. In addition, in the nine months of 2026 and 2025, we incurred $11 million and $220 million, respectively. The timing and amount of our business optimization expenses and the related cost savings from the workforce reduction plan may change as we revise and implement our plans.
Income Taxes
Our effective tax rate was 16.4% for the third quarter and 23.1% for the nine months of 2026 compared to 23.0% for the third quarter and 24.1% for the nine months of 2025. The third quarter 2026 tax rate is lower than the third quarter 2025 tax rate due to the inclusion of incremental favorable one-time tax benefits, which includes $99 million from the reduction of a valuation allowance on certain foreign tax loss carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset in that jurisdiction.
On July 4, 2025, the One Big Beautiful Bill Act was signed into law. Certain provisions within the act are interdependent and have implications for both the effective tax rate and cash taxes.
We are subject to taxation in the U.S. and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2016 through 2021 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.
During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act ("TCJA"). Our lawsuit sought to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $249 million attributable to our interpretation of the TCJA and the Internal Revenue Code. In March 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. On February 13, 2025, the District Court ruled again in our favor with regard to a new argument raised by the U.S. government. On June 4, 2025, the District Court validated the amount of refunds owed for 2018 and 2019, which includes the foreign tax credits previously denied.
On August 1, 2025, the U.S. government filed a notice to appeal the decision to the U.S. Court of Appeals for the Sixth Circuit. The government filed its opening appellant brief on January 7, 2026 and our response is due March 23, 2026. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.
Outlook
Based on current trends, we expect revenue growth to continue into the remainder of 2026, driven by U.S. Domestic service offerings. We expect international revenue to remain pressured as the current trade and geopolitical environment remains highly uncertain, including recent escalation in the Middle East, which continued to increase fuel prices and drive high volatility in shipping patterns globally. In addition, softness in the industrial economy is expected to continue pressuring demand for our Freight LTL services.
We continue to execute on our revenue quality strategy through surcharge management and optimizing our customer and service mix, and aligning our cost base with demand. We will also continue our focus on business optimization, where we are on track to achieve an incremental $1.0 billion in structural cost reduction benefits from DRIVE and Network 2.0 in 2026.
See the "Business Optimization Costs" section of this MD&A for additional information on our transformation initiatives, including our Network 2.0 program and workforce reduction plan in Europe.
-32-
Our capital expenditures for 2026 are now expected to be approximately $4.1 billion, consistent with 2025 levels. Aircraft spend is expected to decline to approximately $1.0 billion, $0.3 billion lower than 2025. This reduction will be offset by an increase of $0.3 billion to support ongoing Network 2.0 initiatives, as well as modernization of global facilities and package handling equipment.
We will continue to evaluate our investments in critical long-term strategic projects to ensure our capital expenditures are expected to generate high returns on investment and are balanced with our outlook for global economic conditions. For additional details on key 2026capital projects, refer to the "Financial Condition - Capital Resources"and "Financial Condition - Liquidity Outlook"sections of this MD&A.
The uncertainty of a slowdown in the global economy, global inflation, geopolitical challenges including recent escalation in the Middle East, developments in international trade, and the effects these factors will have on the rate of growth of global trade, supply chains, fuel prices, and our business in particular, make any expectations for the remainder of 2026 inherently less certain. See Part I "Item 1A. Risk Factors" in our Annual Report for more information.
See the "Trends Affecting Our Business," "Critical Accounting Estimates,"and "Forward-Looking Statements"sections of this MD&A for additional information.
RECENT ACCOUNTING GUIDANCE
See Note 1of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.
REPORTABLE SEGMENTS
Federal Express and FedEx Freight represent our major service lines and constitute our reportable segments. Our reportable segments include the following businesses:
Federal Express Segment
Federal Express (express transportation, small-package ground delivery, and freight transportation)
FedEx Freight Segment
FedEx Freight (LTL freight transportation)
FedEx Custom Critical, Inc. (time-critical transportation)
The Federal Express segment operates combined sales, marketing, administrative, and information-technology functions in shared service operations for U.S. customers of our major business units and certain back-office support to FedEx Freight and our other operating segments which allows us to obtain synergies from the combination of these functions. We allocate the net operating costs of these services to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of FedEx Freight and our other operating segments based on operating income inclusive of these allocations.
Operating expenses for our FedEx Freight segment include allocations of these services from the Federal Express segment. These allocations also include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.
CORPORATE, OTHER, AND ELIMINATIONS
Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, certain other costs and credits not attributed to our core business, and certain costs associated with developing integrated business solutions through our FedEx Dataworks, Inc. ("FedEx Dataworks") operating segment. FedEx Dataworks is focused on creating new digital revenue streams using proven FedEx intelligence to digitize supply chains and create new opportunities for our customers and team members.
Also included in Corporate and other are the FedEx Office and Print Services, Inc. ("FedEx Office") operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.
The results of Corporate, other, and eliminations are not allocated to the other business segments.
Operating results in Corporate, other, and eliminations improved in the third quarter and nine months of 2026 reflecting lower business optimization costs at corporate headquarters and FedEx Dataworks, and decreased purchased transportation at FedEx Logistics.
-33-
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. For example, during the third quarter of 2026 FedEx Freight provided road and intermodal support for Federal Express.In addition, Federal Expressworks with FedEx Logistics to secure air charters and other cargo space for U.S. customers. Billings for such services are based on negotiated rates and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.
FEDERAL EXPRESS SEGMENT
Federal Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the periods ended February 28, 2026 and 2025:
Three Months Ended Percent Nine Months Ended Percent
2026 2025 Change 2026 2025 Change
Revenue:
Package:
U.S. priority $ 2,901 $ 2,646 10 $ 8,511 $ 7,800 9
U.S. deferred 1,590 1,386 15 4,259 3,736 14
U.S. ground 9,860 8,986 10 27,687 25,298 9
Total U.S. domestic package revenue 14,351 13,018 10 40,457 36,834 10
International priority 2,361 2,097 13 7,002 6,534 7
International economy 1,488 1,465 2 4,353 4,413 (1)
Total international export package revenue 3,849 3,562 8 11,355 10,947 4
International domestic(1)
1,153 1,078 7 3,545 3,380 5
Total package revenue 19,353 17,658 10 55,357 51,161 8
Freight:
U.S. 297 286 4 904 1,238 (27)
International priority 627 551 14 1,839 1,717 7
International economy 538 470 14 1,648 1,462 13
Total freight revenue 1,462 1,307 12 4,391 4,417 (1)
Other 339 216 57 955 749 28
Total revenue 21,154 19,181 10 60,703 56,327 8
Operating expenses:
Salaries and employee benefits 7,231 6,390 13 20,571 18,920 9
Purchased transportation 5,665 5,196 9 16,218 15,064 8
Rentals and landing fees 1,057 1,002 5 3,098 2,975 4
Depreciation and amortization 971 926 5 2,856 2,779 3
Fuel 751 777 (3) 2,290 2,566 (11)
Maintenance and repairs 670 672 - 2,180 2,106 4
Separation and other costs 37 - NM 60 - NM
Business optimization costs 67 92 (27) 95 341 (72)
Intercompany allocations (206) (199) 4 (668) (591) 13
Other 3,339 3,031 10 9,742 8,868 10
Total operating expenses 19,582 17,887 9 56,442 53,028 6
Operating income $ 1,572 $ 1,294 21 $ 4,261 $ 3,299 29
Operating margin 7.4 % 6.7 % 70 bp 7.0 % 5.9 % 110 bp
(1)International domestic revenue relates to our international intra-country operations.
-34-
Percent of Revenue
Three Months Ended Nine Months Ended
2026 2025 2026 2025
Operating expenses:
Salaries and employee benefits 34.2 % 33.3 % 33.9 % 33.6 %
Purchased transportation 26.8 27.1 26.7 26.7
Rentals and landing fees 5.0 5.2 5.1 5.3
Depreciation and amortization 4.6 4.8 4.7 4.9
Fuel 3.5 4.1 3.8 4.6
Maintenance and repairs 3.2 3.5 3.6 3.7
Separation and other costs 0.2 - 0.1 -
Business optimization costs 0.3 0.5 0.2 0.6
Intercompany allocations (1.0) (1.0) (1.1) (1.0)
Other 15.8 15.8 16.0 15.7
Total operating expenses 92.6 93.3 93.0 94.1
Operating margin 7.4 % 6.7 % 7.0 % 5.9 %
-35-
The following table compares selected statistics (in thousands, except yield amounts) for the periods ended February 28, 2026 and 2025:
Three Months Ended Percent Nine Months Ended Percent
2026 2025 Change 2026 2025 Change
Package Statistics
Average daily package volume (ADV)(1):
U.S. priority 1,679 1,588 6 1,671 1,597 5
U.S. deferred 1,268 1,162 9 1,154 1,048 10
U.S. ground commercial 4,234 4,181 1 4,298 4,260 1
U.S. ground home delivery/economy 8,315 7,887 5 7,583 7,092 7
Total U.S. domestic ADV 15,496 14,818 5 14,706 13,997 5
International priority 566 558 1 570 592 (4)
International economy 599 583 3 566 552 3
Total international export ADV 1,165 1,141 2 1,136 1,144 (1)
International domestic(2)
1,794 1,908 (6) 1,875 1,930 (3)
Total ADV 18,455 17,867 3 17,717 17,071 4
Revenue per package (yield):
U.S. priority $ 27.43 $ 26.44 4 $ 26.82 $ 25.70 4
U.S. deferred 19.89 18.94 5 19.42 18.77 3
U.S. ground 12.47 11.82 5 12.26 11.73 5
U.S. domestic composite 14.70 13.95 5 14.48 13.85 5
International priority 66.16 59.65 11 64.70 58.11 11
International economy 39.45 39.92 (1) 40.48 42.03 (4)
International export composite 52.44 49.57 6 52.63 50.35 5
International domestic(2)
10.20 8.96 14 9.95 9.22 8
Composite package yield 16.65 15.69 6 16.44 15.77 4
Freight Statistics
Average daily freight pounds:
U.S. 2,006 2,201 (9) 2,103 3,440 (39)
International priority 4,922 4,485 10 4,891 4,625 6
International economy 11,480 10,990 4 11,743 11,387 3
Total average daily freight pounds 18,408 17,676 4 18,737 19,452 (4)
Revenue per pound (yield):
U.S. $ 2.35 $ 2.06 14 $ 2.26 $ 1.89 20
International priority 2.02 1.95 4 1.98 1.95 2
International economy 0.74 0.68 9 0.74 0.68 9
Composite freight yield 1.26 1.17 8 1.23 1.20 3
(1)ADV is calculated on a 5-day-per-week basis.
(2)International domestic statistics relate to our international intra-country operations.
-36-
Federal Express Segment Revenue
Federal Express segment revenue increased 10% in the third quarter and 8% in the nine months of 2026 primarily due to improved U.S. domestic and international priority package base yields, increased U.S. domestic package volumes, and favorable exchange rates, partially offset by the negative impacts from global trade policy changes and decreased fuel surcharges. Improved base yields and U.S. domestic package volumes reflect strong residential e-commerce growth in the U.S. domestic business, while international performance benefitted from increased business-to-business demand.
Volume
U.S. deferred package volume increased 9% in the third quarter and 10% in the nine months of 2026 driven by peak-related growth. U.S. priority package volume increased 6% in the third quarter and 5% in the nine months of 2026 supported by growth in demand by business-to-business customers. U.S. ground package volume increased 4% in the third quarter and 5% in the nine months of 2026 benefitting from higher home delivery and economy package volumes driven by increased business-to-consumer volume.
International export package volume increased 2% in the third quarter primarily driven by higher business-to-business demand in Asia Pacific and Europe, offsetting the negative impacts of global trade policy changes. In the first nine months of 2026, international export package volumes decreased 1% primarily due the impacts of global trade policy changes.
Total average daily freight pounds increased 4% in the third quarter driven by international priority freight volume increases. In the first nine months of 2026, total average daily freight pounds decreased 4% reflecting the reduction of postal-related volumes following the expiration of our contract with the U.S. Postal Service.
Yield
U.S. domestic composite package yield increased 5% in the third quarter and 5% in the nine months of 2026 primarily due to improved base yields.
International priority package yield increased by 11% in the third quarter and 11% in the nine months of 2026 due to increased weight per package and favorable exchange rates. International economy package yields decreased 1% in the third quarter and 4% in the nine months of 2026 due to decreased base yields, partially offset by favorable exchange rates.
Federal Express Segment Operating Income
Federal Express segment operating income increased 21% in the third quarter and 29% in the nine months of 2026 due to higher U.S. domestic and international priority package yields, continued structural cost reductions realized from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and higher U.S. domestic package demand. These improvements were partially offset by increased salaries and employee benefits expense, the negative impacts from global trade policy changes including higher credit losses, higher purchased transportation rates, and the grounding of our MD-11 fleet.
Salaries and employee benefits expense increased 13% in the third quarter and 9% in the nine months of 2026 primarily due to higher variable incentive compensation, wage rates, and employee benefits expense, unfavorable exchange rates, and increased staffing to align with higher volumes in the U.S. Purchased transportation expense increased 9% in the third quarter and 8% in the nine months of 2026 primarily due to increased volume, higher rates, and unfavorable exchange rates. Other operating expense increased 10% in the third quarter and 10% in the nine months of 2026 primarily due to increased professional and outside service contract fees, credit losses from higher revenue and impacts from global trade policy changes, and customs-related brokerage fees due to the removal of the de minimis exemption.
Federal Express segment results include business optimization costs of $67 million and $95 million in the third quarter and nine months of 2026, respectively, compared to $92 million and $341 million in the same periods of 2025. Results also include $5 million and $16 million in the third quarter and nine months of 2026, respectively, of costs associated with our planned fiscal year change, and $32 million and $44 million in the third quarter and nine months of 2026, respectively, of costs associated with the planned spin-off of FedEx Freight. Federal Express did not incur any costs associated with our planned fiscal year change or the planned spin-off of FedEx Freight in the third quarter or nine months of 2025. See the "Business Optimization Costs" and "Separation and Other Costs" sections of this MD&A for more information.
-37-
FEDEX FREIGHT SEGMENT
FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the periods ended February 28, 2026 and 2025:
Three Months Ended Percent Nine Months Ended Percent
2026 2025 Change 2026 2025 Change
Revenue $ 1,991 $ 2,089 (5) $ 6,387 $ 6,595 (3)
Operating expenses:
Salaries and employee benefits 977 939 4 2,935 2,899 1
Purchased transportation 193 202 (4) 591 602 (2)
Rentals 74 72 3 224 215 4
Depreciation and amortization 112 113 (1) 335 335 -
Fuel 104 112 (7) 327 344 (5)
Maintenance and repairs 73 85 (14) 243 255 (5)
Separation and other costs 126 - NM 287 - NM
Intercompany charges 134 142 (6) 449 433 4
Other 190 163 17 538 500 8
Total operating expenses 1,983 1,828 8 5,929 5,583 6
Operating income $ 8 $ 261 (97) $ 458 $ 1,012 (55)
Operating margin 0.4 % 12.5 % (1210) bp 7.2 % 15.3 % (810) bp
Average daily shipments (in thousands):
Priority 55.6 58.2 (4) 59.3 61.2 (3)
Economy 24.6 26.9 (9) 26.6 28.2 (6)
Total average daily shipments 80.2 85.1 (6) 85.9 89.4 (4)
Weight per shipment (lbs):
Priority 929 935 (1) 931 943 (1)
Economy 918 877 5 911 870 5
Composite weight per shipment 926 917 1 925 920 1
Revenue per shipment:
Priority $ 365.19 $ 360.68 1 $ 361.86 $ 359.19 1
Economy 414.19 408.56 1 410.05 405.72 1
Composite revenue per shipment $ 380.24 $ 375.81 1 $ 376.81 $ 373.85 1
Revenue per hundredweight:
Priority $ 39.32 $ 38.57 2 $ 38.88 $ 38.11 2
Economy 45.11 46.59 (3) 44.99 46.66 (4)
Composite revenue per hundredweight $ 41.08 $ 41.00 - $ 40.75 $ 40.66 -
-38-
Percent of Revenue
Three Months Ended Nine Months Ended
2026 2025 2026 2025
Operating expenses:
Salaries and employee benefits 49.1 % 44.9 % 46.0 % 43.9 %
Purchased transportation 9.7 9.7 9.3 9.1
Rentals 3.7 3.4 3.5 3.3
Depreciation and amortization 5.6 5.4 5.2 5.1
Fuel 5.2 5.4 5.1 5.2
Maintenance and repairs 3.7 4.1 3.8 3.9
Separation and other costs 6.3 - 4.5 -
Intercompany charges 6.7 6.8 7.0 6.6
Other 9.6 7.8 8.4 7.6
Total operating expenses 99.6 87.5 92.8 84.7
Operating margin 0.4 % 12.5 % 7.2 % 15.3 %
FedEx Freight Segment Revenue
FedEx Freight segment revenue decreased 5% in the third quarter and 3% in the first nine months of 2026 primarily due tolower volume resulting from macroeconomic conditions, partially offset by increased weight per shipment.
Average daily shipments decreased 6% in the third quarter and 4% in the nine months of 2026 due to reduced demand for our services primarily resulting from macroeconomic conditions, including continued weak industrial production, global trade policy uncertainty, and excess capacity in the LTL industry. Revenue per shipment increased 1% in the third quarter and 1% in the nine months of 2026 primarily due to increased weight per shipment.
FedEx FreightSegment Operating Income
FedEx Freight segment operating income decreased 97% in the third quarter and 55% in the nine months of 2026 primarily due to higher costs related to the planned spin-off of FedEx Freight, including increased salaries and employee benefits expense, outside service contracts and professional fees, as well as reduced demand. These impacts were partially offset by increased revenue per shipment.
Salaries and employee benefit expenses increased 4% in the third quarter and 1% in the nine months of 2026 largely reflecting spin-off-related personnel activity, including the transfer to FedEx Freight of over 1,500 employees from Federal Express during the nine months of 2026, as well as higher wage rates, partially offset by lower volume. Other operating expense increased 17% in the third quarter and 8% in the nine months of 2026 due to increased outside service contracts and professional fees related to the planned spin-off, including incremental software license costs and other technology-related activities.
Separation and other costs of $126 million in the third quarter and $287 million in the nine months of 2026 are primarily professional fees associated with the planned spin-off. FedEx Freight did not incur any spin-off related costs in the third quarter or nine months of 2025. See the "Separation and Other Costs" section of this MD&A for more information.
-39-
FINANCIAL CONDITION
LIQUIDITY
Cash, cash equivalents, and restricted cash totaled $11.7 billion at February 28, 2026, compared to $5.5 billion at May 31, 2025. The following table provides a summary of our cash flows for the periods ended February 28, 2026 and 2025 (in millions):
Nine Months Ended
2026 2025
Operating activities:
Net income $ 2,836 $ 2,444
Separation and other costs, net of payments 129 4
Business optimization costs, net of payments (129) 114
Other noncash charges and credits 6,299 6,058
Changes in assets and liabilities (3,475) (4,103)
Cash provided by operating activities 5,660 4,517
Investing activities:
Capital expenditures (2,335) (2,582)
Purchase of investments (427) (197)
Proceeds from sale of investments 254 77
Proceeds from asset dispositions, and other investing activities, net 73 42
Cash used in investing activities (2,435) (2,660)
Financing activities:
Proceeds from debt issuances 4,689 -
Principal payments on debt (714) (89)
Proceeds from stock issuances 774 472
Dividends paid (1,028) (1,008)
Purchases of common stock (796) (2,517)
Other (49) (30)
Cash provided by (used in) financing activities 2,876 (3,172)
Effect of exchange rate changes on cash 85 (51)
Net increase (decrease) in cash, cash equivalents, and restricted cash 6,186 (1,366)
Cash, cash equivalents, and restricted cash at the end of period $ 11,688 $ 5,135
Cash Provided by Operating Activities. Cash flows from operating activities increased $1.1 billion in the nine months of 2026 primarily due to higher net income, net of non-cash adjustments, and favorable working capital changes driven by increases in accruals for variable incentive compensation, pension liabilities, self-insurance, and professional fees, partially offset by an increase in accounts receivable.
Cash Used in Investing Activities. Capital expenditures decreased $0.2 billion in the nine months of 2026 primarily due to decreased spending on "aircraft and related equipment" at Federal Express and "vehicles and trailers" at FedEx Freight. See "Capital Resources" for a discussion of capital expenditures during 2026.
Cash Provided by (Used in) Financing Activities. Cash flows from financing activities increased $6.0 billion in the nine months of 2026 primarily due to the proceeds from debt issuances and less repurchases of our common stock compared to the nine months of 2025. On February 5, 2026, FedEx Freight Holding issued $3.7 billion of senior unsecured notes in a private offering. The notes were offered as part of the financing for the planned spin-off of FedEx Freight. Additionally, in the nine months of 2026, we issued €850 million of a senior unsecured note and used a portion of the net proceeds to repay the €500 million aggregate principal amount outstanding of our 0.45% notes at maturity. SeeNote 1and Note 4of the accompanying unaudited condensed consolidated financial statements, "Liquidity Outlook" below, and Part II, Item 2. "Unregistered Sales of Equity Securities and Use of Proceeds"for additional information.
CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant investments in aircraft, package handling and sort equipment, technology, vehicles and trailers, and facilities. The amount and timing of capital investments depend on various factors, including
-40-
pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the periods ended February 28, 2026 and 2025 (in millions):
Three Months Ended Nine Months Ended
Percent Change
2026 2025 2026 2025 Three Months Ended Nine Months Ended
Aircraft and related equipment $ 196 $ 367 $ 380 $ 630 (47) (40)
Package handling and ground support equipment 203 208 660 618 (2) 7
Information technology 128 107 339 366 20 (7)
Vehicles and trailers 175 99 282 373 77 (24)
Facilities and other 253 216 674 595 17 13
Total capital expenditures $ 955 $ 997 $ 2,335 $ 2,582 (4) (10)
Federal Express segment $ 782 $ 844 $ 1,990 $ 2,145 (7) (7)
FedEx Freight segment 153 129 285 359 19 (21)
Other 20 24 60 78 (17) (23)
Total capital expenditures $ 955 $ 997 $ 2,335 $ 2,582 (4) (10)
Capital expenditures decreased in the third quarter of 2026 primarily due to decreased spending on "aircraft and related equipment" at Federal Express, partially offset by increased spending at Federal Express and FedEx Freight on "vehicles and trailers," "facilities and other," and "information technology.".
Capital expenditures decreased in the nine months of 2026 primarily due to decreased spending on "aircraft and related equipment" at Federal Express and "vehicles and trailers" at FedEx Freight, partially offset by increased spending on "facilities and other" at FedEx Freight and Federal Express and "package handling and ground support equipment" at Federal Express. These reductions are a result of continuing to prioritize investments that support increasing efficiency and reducing our cost to serve.
GUARANTOR FINANCIAL INFORMATION
We are providing the following information in compliance with Rule 13-01 of Regulation S-X, "Financial Disclosures about Guarantors and Issuers of Guaranteed Securities" with respect to the senior unsecured debt securities issued by FedEx and Pass-Through Certificates, Series 2020-1AA (the "Certificates") issued by Federal Express.
The $19.9 billion principal amount of the senior unsecured notes were issued by FedEx under a shelf registration statement and are guaranteed by certain direct and indirect subsidiaries of FedEx ("Guarantor Subsidiaries"). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer, or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate, and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee. See Note 4of the accompanying unaudited condensed consolidated financial statements for information regarding the issuance by FedEx of its senior unsecured debt guaranteed by the Guarantor Subsidiaries that was completed during the first quarter of 2026. As discussed in Note 4, the senior unsecured debt issued by FedEx Freight Holding Company, Inc. during the third quarter of 2026 was issued in an unregistered offering.
Additionally, FedEx fully and unconditionally guarantees the payment obligation of Federal Express in respect of the $685 million principal amount of the Certificates. See Note 4of the accompanying unaudited condensed consolidated financial statements and Note 6to the financial statements included in our Annual Report for additional information regarding the terms of the Certificates.
-41-
The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.
Parent and Guarantor Subsidiaries
The following table presents the summarized balance sheet information as of February 28, 2026 and May 31, 2025 (in millions):
February 28, 2026 May 31, 2025
Current Assets $ 11,694 $ 9,514
Intercompany Receivable 5,679 4,278
Total Assets 86,032 83,125
Current Liabilities 13,436 11,202
Intercompany Payable - -
Total Liabilities $ 54,105 $ 52,324
The following table presents the summarized statement of income information for the period ended February 28, 2026 (in millions):
Nine Months Ended
February 28, 2026
Revenue $ 52,215
Intercompany Charges, net (3,262)
Operating Income 3,547
Intercompany Charges, net 217
Income Before Income Taxes 2,890
Net Income $ 2,085
The following tables present summarized financial information for FedEx (as Parent Guarantor) and Federal Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.
Parent Guarantor and Subsidiary Issuer
The following table presents the summarized balance sheet information as of February 28, 2026 and May 31, 2025 (in millions):
February 28, 2026 May 31, 2025
Current Assets $ 10,589 $ 9,504
Intercompany Receivable 2,565 581
Total Assets 74,789 72,044
Current Liabilities 12,447 10,310
Intercompany Payable - -
Total Liabilities $ 50,740 $ 49,200
The following table presents the summarized statement of income information for the period ended February 28, 2026 (in millions):
Nine Months Ended
February 28, 2026
Revenue $ 45,557
Intercompany Charges, net (3,835)
Operating Income 3,174
Intercompany Charges, net 49
Income Before Income Taxes 3,069
Net Income $ 2,321
-42-
LIQUIDITY OUTLOOK
In response to current business and economic conditions as referenced above in the "Outlook" section of this MD&A, we are continuing to actively manage and optimize our capital allocation in response to the slowdown in the economy, inflationary pressures, changing fuel prices, geopolitical conflicts, and uncertainty regarding international trade, including the impact of global trade policy changes.
We held $8.0 billion in cash and cash equivalents at February 28, 2026 and had $3.5 billion in available liquidity under our $1.75 billion three-year credit agreement (the "Three-Year Credit Agreement") and $1.75 billion five-year credit agreement (the "Five-Year Credit Agreement" and together with the Three-Year Credit Agreement, the "Credit Agreements"), and we believe that our cash and cash equivalents, cash from operations, and available financing sources will be adequate to meet our liquidity needs, which include operational requirements, expected capital expenditures, voluntary pension contributions, dividend payments, and stock repurchases. See Note 4of the accompanying unaudited condensed consolidated financial statements for information regarding recent amendments to the Credit Agreements. In the third quarter of 2025, we began incurring costs related to the planned spin-off of FedEx Freight, which are expected to be significant but are not expected to adversely affect our liquidity.
On February 9, 2026, InPost S.A. ("InPost") and a consortium including FedEx announced a conditional agreement on an intended recommended all-cash public offer for all issued and outstanding shares of InPost at an offer price of €15.60 (cum dividend) per share (the "Offer"). Post-completion, the consortium will be structured with FedEx holding 37%. InPost will continue to operate as a standalone company. The Offer and the transactions contemplated thereby (the "Transactions") are subject to certain customary closing conditions, including, among others, the receipt of regulatory approvals. Based upon the proposed Offer price, FedEx's investment is valued at approximately $2.6 billion. FedEx intends to fund its portion of the Offer by utilizing available cash balances, existing or new liquidity sources, or a combination thereof. Once the Transactions are completed, InPost and FedEx will enter into arm's length commercial agreements that will enable both businesses to benefit from complementary strengths and a shared vision. The Transaction is expected to be completed in the second half of 2026.
We repurchased an aggregate of $776 million of our common stock in the nine months of 2026 through open market transactions. We did not repurchase common stock in the third quarter of 2026. See Note 1of the accompanying unaudited condensed consolidated financial statements and "Item 2. Unregistered Sales of Equity Securities and Use of Proceeds"for more information. Subject to market conditions, liquidity needs, and other factors, the company will continue to evaluate repurchasing additional shares of our common stock during the remainder of fiscal 2026.
Our cash and cash equivalents balance at February 28, 2026 includes $4.1 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost and do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations.
We held $3.7 billion of restricted cash at February 28, 2026, in net proceeds from the senior unsecured notes issued by FedEx Freight Holding that is being held in a segregated account. See Note 4of the accompanying unaudited condensed consolidated financial statements for additional information.
Our capital expenditures for 2026 are now expected to be approximately $4.1 billion, consistent with 2025 levels. Aircraft spend is expected to decline to approximately $1.0 billion, $0.3 billion lower than 2025. This reduction will be offset by an increase of $0.3 billion to support ongoing Network 2.0 initiatives, as well as modernization of global facilities and package handling equipment.
There have been no material changes to the contractual commitments described in Part II, Item 7 in our Annual Report. We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material effect on our financial condition or liquidity.
We have several aircraft modernization programs under way that are supported by the purchase of Boeing 777 Freighter ("B777F") and Boeing 767-300 Freighter ("B767F") aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements.
The Three-Year Credit Agreement and the Five-Year Credit Agreement expire in March 2028 and March 2030, respectively. Each of the Credit Agreements has a $125 million letter of credit sublimit. The Credit Agreements are available to finance our operations and other cash flow needs.
We have a shelf registration statement filed with the Securities and Exchange Commission ("SEC") that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by Federal Expressto sell, in one or more future offerings, pass-through certificates.
-43-
During the nine months of 2026, we made voluntary contributions of $275 million to our tax-qualified U.S. domestic pension plan ("U.S. Pension Plan"). We do not anticipate making any additional voluntary contributions for the remainder of fiscal 2026. There arecurrently no required minimum contributions to our U.S. Pension Plan, and we maintain a credit balance related to our cumulative excess voluntary pension contributions over those required thatexceeds $3.0 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we have the flexibility to eliminate all required contributions to our U.S. Pension Plan for several years. Our U.S. Pension Plan has ample funds to meet expected benefit payments.
On February 13, 2026, our Board of Directors declared a quarterly cash dividend of $1.45 per share of common stock. The dividend will be paid on April 1, 2026 to stockholders of record as of the close of business on March 9, 2026.Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis.
Standard & Poor's has assigned us a senior unsecured debt credit rating of BBB, a Certificates rating of AA-, a commercial paper rating of A-2, and a ratings outlook of "stable." Moody's Investors Service has assigned us an unsecured debt credit rating of Baa2, a Certificates rating of Aa3, a commercial paper rating of P-2, and a ratings outlook of "stable." Our interest expense may increase in the event of a reduction in our credit rating. If our unsecured debt or commercial paper ratings are reduced to below investment grade, our access to the capital markets may become limited.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.
GOODWILL.Goodwill is evaluated for impairment indicators between annual tests and tested for impairment whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any additional change of events or circumstances that would indicate that additional reevaluation of the goodwill of our reporting units is required as of February 28, 2026, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 to the financial statements included in our Annual Report.
Information regarding our critical accounting estimates can be found in our Annual Report, including Note 1 to the financial statements therein. Management has discussed the development and selection of these critical accounting estimates with the Audit and Finance Committee of our Board of Directors and with our independent registered public accounting firm.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in "General," "Trends Affecting Our Business," "Separation and Other Costs," "Business Optimization Costs," "Income Taxes," "Outlook," "Liquidity Outlook," "Legal Proceedings," and "Risk Factors" and the "Description of Business Segments and Summary of Significant Accounting Policies," "Financing Arrangements," "Retirement Plans," "Commitments," and "Contingencies" notes to our unaudited condensed consolidated financial statements, are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA") with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance, and business and the assumptions underlying such statements. Forward-looking statements include those preceded by, followed by, or that include the words "will," "may," "could," "would," "should," "believes," "expects," "anticipates," "plans," "estimates," "targets," "forecasts," "projects," "intends," or similar expressions. These forward-looking statements, which are intended to enjoy the protection of the safe harbor for forward-looking statements provided by the PSLRA as well as protections afforded by other federal securities laws, involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:
•economic conditions in the global markets in which we operate;
•significant changes in the volumes of shipments transported through our networks, customer demand for our various services, or the prices we obtain for our services;
•geopolitical developments and uncertainty and/or additional volatility in the global trade environment;
•the price and availability of jet and vehicle fuel;
•failure to successfully implement our business strategy and effectively respond to changes in market dynamics and customer preferences;
-44-
•our ability to execute our transformation initiatives, including Network 2.0 and the redesign of the Federal Express international air network, in the expected time frame and at the expected cost and achieve the expected operational efficiencies and network flexibility, alignment of our cost base with demand, cost savings and reductions to our permanent cost structure, and other benefits while managing the potential risks;
•our ability to achieve our calendar 2029 financial performance targets;
•our ability to successfully implement the planned tax-free spin-off of the FedEx Freight business into a new publicly traded company and achieve the anticipated benefits of such transaction;
•the timing and amount of any costs or benefits or any specific outcome, transaction, or change (of which there can be no assurance), or the terms, timing, and structure thereof, related to our global transformation program and other ongoing reviews and initiatives;
•a significant data breach or other disruption to our technology infrastructure, and our ability to mitigate the technological, operational, legal and regulatory, and reputational risks related to emerging technologies such as autonomous technology and artificial intelligence;
•the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio;
•increased insurance and claims expenses related to vehicle accidents, workers' compensation claims, property and cargo loss, general business liabilities, and benefits paid under employee disability programs;
•failure to receive or collect expected insurance coverage;
•the effect of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry, or FedEx in particular;
•failure of third-party service providers to perform as expected, or disruptions in our relationships with those providers or their provision of services to FedEx;
•widespread outbreak of an illness or any other communicable disease or public health crisis;
•damage to our reputation or loss of brand equity;
•the effect of intense competition on our ability to maintain or increase our prices (including our fuel surcharges) or to maintain or grow our revenue and market share;
•our ability to manage our network capacity and cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;
•our ability to execute and effectively operate, integrate, leverage, and grow acquired businesses, and to continue to support the value we allocate to these acquired businesses;
•uncertainties relating to entry into the conditional agreement, as a member of a consortium, to invest in InPost, including completion of regulatory approvals, entry into commercial arrangements with InPost, and the realization of expected benefits from the investment;
•noncash impairment charges related to our goodwill and certain deferred tax assets;
•failure to attract and retain employee talent and our ability to meet our labor and purchased transportation needs while controlling related costs and maintain our company culture;
•our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility, as well as the outcome of negotiations to reach new collective bargaining agreements (including with the pilots of Federal Express);
•increasing costs, the volatility of costs and funding requirements, and other legal mandates for employee benefits, especially pension and healthcare benefits;
•the effects of global climate change;
•our ability to achieve or demonstrate progress on our goal of carbon neutrality for our global operations by calendar 2040;
-45-
•our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography;
•any effects on our businesses resulting from evolving or new U.S. domestic or international government regulations, laws, policies, and actions, which could be unfavorable to our business, including labor (such as joint employment standards or changes to the Railway Labor Act of 1926, as amended, affecting Federal Express employees); regulatory or other actions affecting data protection; global aviation or other transportation rights, including regulatory and/or legal compliance requirements that can affect our ability to efficiently or fully utilize our aircraft; increased air cargo, pilot flight and duty time, and other security or safety requirements; import and export controls; the use of new technology and accounting; changes to global trade policies; foreign exchange intervention in response to currency volatility; environmental (such as global climate change legislation); or postal rules;
•adverse changes in tax laws, regulations, and interpretations, challenges or judicial decisions related to tariffs and our tax positions;
•increasing costs related to changing and heightened regulations and enforcement related to data protection;
•the increasing costs of compliance with federal, state, and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;
•loss or delay in the collection of accounts receivable, including those related to tariffs in light of recent judicial rulings;
•changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Mexican peso, Hong Kong dollar, and Japanese yen, which can affect our sales levels and foreign currency sales prices;
•any liability resulting from and the costs of defending against class-action, derivative, and other litigation, such as wage-and-hour, joint employment, securities, vehicle accident, and discrimination and retaliation claims, claims related to our reporting and disclosure of environmental and sustainability topics, claims seeking refunds of tariffs and any other legal or governmental proceedings, including the matters discussed in Note 9of the accompanying unaudited condensed consolidated financial statements;
•the effect of technology developments (including artificial intelligence and machine learning) on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;
•the sufficiency of insurance coverage we purchase;
•disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;
•difficulties experienced by the companies with which we contract to fly smaller regional "feeder" aircraft in attracting and retaining pilots, which could cause a reduction of service offered to certain locations, service disruptions, increased costs of operations, and other difficulties;
•governmental underinvestment in transportation infrastructure, which could increase our costs and adversely affect our service levels due to traffic congestion, prolonged closure of key thoroughfares, or sub-optimal routing of our vehicles and aircraft;
•successful completion of stock repurchases;
•constraints, volatility, or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, and senior unsecured debt and pass-through certificate credit ratings, and our ability to meet credit agreement financial covenants; and
•other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under Part I, Item IA. "Risk Factors" in our Annual Report, as updated by our quarterly reports on Form 10-Q and current reports on Form 8-K.
As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report.
-46-
We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise.
FedEx Corporation published this content on March 19, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 19, 2026 at 20:17 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]