FedEx CEO’s sweeping network overhaul is starting to bear fruit

[NEW YORK] FedEx offered investors a sign that chief executive officer Raj Subramaniam’s turnaround plan may be worth the wait.

The shipping heavyweight raised the low end of its profit outlook for the year and reported earnings for the most recent quarter that topped Wall Street estimates, helped by volume and pricing gains in the US.

The results suggest that Subramaniam’s push to combine FedEx’s ground and air-freight networks and slash billions of US dollars in costs is beginning to pay off after spotty demand and President Donald Trump’s trade and tariff policies obscured progress for much of the year.

“We are demonstrating the resilience and flexibility we have built into our network, and our ongoing efforts to reduce structural costs are leading to significant improvements in profitability,” Subramaniam said on Thursday (Dec 19) on the company’s earnings call.

Investors have embraced the strategy, which the company estimates will produce US$1 billion in permanent cost reductions in 2026. Shares of FedEx have gained more than 28 per cent in the six months through Thursday’s close while those of rival United Parcel Service have risen less than 3 per cent.

FedEx shares were little changed at 6.56 pm in New York on Thursday, paring earlier gains.

Demand improved in the company’s fiscal second quarter, which marks the beginning of the holiday shipping season when couriers traditionally see a spike in volume.

Revenue rose 7 per cent, more than analysts expected. Adjusted earnings were US$4.82 a share, topping the US$4.12 average analyst estimate compiled by Bloomberg.

FedEx said adjusted earnings will be US$17.80 to US$19 a share for the full year, raising the low end of its prior forecast. The midpoint of that range is higher than the US$18.28 per share average analyst estimate compiled by Bloomberg.

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Still, the company is working through new challenges. Adjusted earnings in the current period will decline from the second quarter, in part due to higher costs from the grounding of MD-11 cargo jets. The workhorse jets for air-freight carriers were parked after a UPS jet crashed near its Louisville, Kentucky, hub, in November, killing 14 people.

The grounding will reduce operating profit by as much as US$175 million in the second half of its fiscal year, chief financial officer John Dietrich said on the call.

The plane type represents about 4 per cent of FedEx’s fleet, which has raised concerns about disruptions to service during peak season.

The company also has been working to overcome a slump in post-pandemic shipping demand that stalled even further earlier this year as Trump’s erratic tariff policies scrambled shipping lanes. FedEx now expects sales to rise 5 to 6 per cent this year, lifting the floor of its prior forecast.

FedEx has said it would take a US$1 billion hit to adjusted operating profit due to that volatility, largely due to fewer shipments from China to the US, a highly profitable shipping lane that’s borne the brunt of the levies. BLOOMBERG