FedEx Grows Profits, Cuts Costs in Fiscal Q4 2025

FedEx Corporation (NYSE:FDX) reported its fiscal 2025 fourth-quarter earnings on June 24, 2025, achieving 1% revenue growth and an 8% increase in adjusted operating income, as well as 60 basis points of adjusted operating margin expansion. In fiscal 2025, it returned $4.3 billion to shareholders via stock buybacks and dividends, and executed major strides in network optimization and segment transformation despite significant industry and macroeconomic headwinds. The company also achieved $4 billion in structural cost reductions over two years compared to the fiscal 2023 baseline.

On the earnings call, management called out FedEx's strategic progress, resilience amid trade disruptions, and strengthened capital efficiency.

Transformation Milestones: Structural Cost Reduction, Network Integration, and Shareholder Returns

During the fiscal year, which ended May 31, FedEx achieved $2.2 billion in DRIVE structural cost reductions resulting in cumulative DRIVE savings of $4 billion since fiscal 2023. It completed its Network 2.0 optimization in Canada, and continues to optimize U.S. sites rapidly. As of the end of June, its Network 2.0 optimized stations will be handling an average of 2.5 million packages daily. Capital intensity was reduced to a multidecade low, and the company exceeded its $3.8 billion return-to-shareholder goal.

"In FY 2025, we delivered on our $2.2 billion drive structural cost reduction commitment. This enabled us to achieve our two-year $4 billion drive target compared to the FY '23 baseline. We advanced Network 2.0 in FY '25 as we began optimizing larger, more densely populated markets. We continued to lower our capital intensity, and we returned $4.3 billion in cash to stockholders. We achieved all of this in the face of major headwinds, including the expiration of our U.S. Postal Service contract, two fewer operating days, and volatility and uncertainty related to global trade policies."
— Raj Subramaniam, President and CEO

These achievements provide FedEx with increased operational leverage and improved financial resilience, positioning it to benefit disproportionately as industrial demand normalizes. They also afford it more flexibility for continued shareholder capital returns in fiscal 2026, regardless of near-term macro weakness.

Network Agility: Flexing Global Capacity Amid Dynamic Trade Flows

In light of heightened tariff-related headwinds in fiscal Q4, FedEx reduced its Asia-to-Americas air capacity by more than 35% in May compared to April. Total China-to-U.S. exposure stands at approximately 2.5% of consolidated revenue, but is the most profitable intercontinental route. Strategic direct flights, consolidation of Asian gateways, and digital trade solutions have enabled rapid network adaptation without service degradation.

"For example, in the fourth quarter, we flexed our network to match the demand environment as trade flows shifted. We reduced capacity on our Asia-to-Americas lane by more than 35% in May compared to April. This included reducing our third-party or wholesale capacity by 50%. We then continued to adjust the capacity as needed. As demand trends evolved throughout the month, we exited May with a net capacity of about 20% versus April. We have been introducing other network changes in Asia, allowing us to consolidate from multiple points into a centralized gateway. We recently added a direct flight from Singapore to the U.S., enabling us to more efficiently capture increased demand out of Southeast Asia."
— Raj Subramaniam, President and CEO

These real-time capacity management moves highlight FedEx's structurally more resilient and flexible business model, which reduces risk in volatile macro environments and unlocks market share opportunities as trade lanes shift geographically.

Capital Allocation Pivot: Sustained Free Cash Flow and Reduced Capex

Adjusted free-cash-flow conversion from net income approached 90% for fiscal 2025, with capex reduced by $1.1 billion year over year to $4.1 billion -- the lowest level since 1998 -- representing only 4.6% of revenue. The company is targeting aircraft capex of $1 billion annually for the next several years, and for fiscal 2026, management has budgeted for total capex of $4.5 billion with $700 million dedicated to Network 2.0. The company has maintained robust pension funding, and announced a 5% dividend increase for its fiscal 2026.

"We also significantly reduced our capex spending in FY 2025 by approximately $1.1 billion for a total of $4.1 billion compared to $5.2 billion in FY 2024. This marks our lowest capital spending in over 10 years. Additionally, our capex as a percentage of revenue was 4.6%, the lowest level since FedEx Corporation was established in fiscal year '98. We're currently planning for FY '26 capex to be approximately $4.5 billion, of which $700 million relates to Network 2.0 investment. And we plan to further reduce aircraft capex to approximately $1 billion this fiscal year, a level we plan to maintain for the next several years. I'm also very proud that our adjusted free cash flow conversion from net income was extremely strong at nearly 90%, representing a step change versus prior years driven by our lower capital intensity."
— John Dietrich, Executive Vice President and CFO

This persistent capital discipline, coupled with high free-cash-flow conversion, enhances the company’s capacity to sustain share repurchases, fund pension obligations, and support margin accretive investments while maintaining balance sheet strength through cycles.

Looking Ahead

For the first quarter of fiscal 2026, management forecasts consolidated revenue to be in the range of flat to up 2%, with an adjusted EPS range of $3.40 to $4, reflecting $200 million in transformation benefits, a $170 million headwind from international trade policy impacts, and a $120 million USPS contract expiry headwind. Full-year guidance will be provided as visibility improves, but management reiterated its target of $1 billion in incremental transformation-related savings for fiscal 2026, and said it aims to spin off FedEx Freight by June 2026. Two investor days are scheduled in early 2026 for management to detail post-separation strategies and milestones.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx. The Motley Fool has a disclosure policy.