FedEx experienced a nearly 5% drop in after-hours trading following the release of its fiscal 2026 earnings forecast, which fell below analysts' expectations. This market reaction occurred despite the company reporting robust fourth-quarter fiscal 2025 results, with adjusted profits of $6.07 per share on revenue of $22.2 billion, surpassing consensus estimates. The cautious outlook from the shipping behemoth is attributed to several factors, including potential impacts from tariffs and a persistent slowdown in the U.S. industrial economy. Simultaneously, FedEx continues to implement its ambitious DRIVE cost reduction program and is progressing with plans to spin off its FedEx Freight division by June 2026.
DRIVE Program: Driving Efficiency Amidst Challenges
The FedEx DRIVE program, a comprehensive initiative launched in early 2023, aims to achieve $4 billion in permanent cost reductions by fiscal 2025, benchmarked against fiscal 2023 levels. This program targets savings across three primary areas: $1.2 billion from Surface Network, $1.3 billion from Air Network & International efficiencies, and $1.5 billion from General & Administrative cost reductions. According to CEO Raj Subramaniam, "DRIVE continues to change the way we work at FedEx," with the company already exceeding its fiscal 2024 target by achieving $1.8 billion in structural cost reductions.
The DRIVE program is also paving the way for Network 2.0, which is projected to deliver an additional $2 billion in savings by fiscal 2027. Key improvements under this initiative include optimizing the air network, implementing a new U.S. network design for enhanced pickup and delivery efficiency, deploying route productivity tools in Europe, and digitizing support functions. While these aggressive cost-cutting measures have positively impacted financial performance, they have also led to workforce adjustments, including layoffs of up to 2,000 employees in Europe and facility closures in the U.S.
FedEx Freight Spin-off: A Strategic Separation
On December 19, 2024, FedEx announced its strategic decision to separate its FedEx Freight division, intending to establish it as an independent, publicly traded company within 18 months, with completion anticipated by June 2026. This move stems from a comprehensive assessment by FedEx's board of directors, aiming to create "two industry-leading public companies" better equipped to respond to their respective market dynamics. The separation is designed to be tax-efficient for stockholders while maintaining strategic cooperation on crucial commercial, operational, and technology initiatives.
FedEx Freight, which generated $9.4 billion in revenue in fiscal 2024 and holds the position as the largest Less-Than-Truckload (LTL) carrier in North America, will be led by John A. Smith as President and CEO, with R. Brad Martin serving as Chairman of the Board post-spin-off. The division has consistently demonstrated strong performance, increasing operating profit by nearly 25% on average per year over the past five years. CEO Raj Subramaniam emphasized that this separation will "unlock value for our Freight business and position FedEx to create even greater value for stockholders" by allowing for more customized operational execution and tailored investment strategies.
Q4 2025 Earnings and the Path Forward
For the fourth quarter of fiscal 2025, FedEx reported revenues of $22.2 billion, a slight year-over-year increase of less than 1%, exceeding analyst expectations of $21.81 billion. Adjusted earnings per share reached $6.07, a notable rise from $5.41 in the prior-year quarter, also surpassing consensus estimates ranging from $5.85 to $5.94. Despite these strong results, the company's stock declined by 5% in extended trading after it suspended its full-year forecast for fiscal 2026.
The company's restrained outlook is primarily driven by potential tariff impacts on shipping demand and continued weakness in the U.S. industrial economy. For Q1 fiscal 2026, FedEx projects adjusted earnings of $3.40 to $4.00 per share, which is below analyst consensus, while revenue is expected to remain flat or increase by up to 2% year-over-year. While the DRIVE cost-cutting program has certainly bolstered profits amid revenue challenges, analysts have voiced concerns regarding "softer international demand" and the pace of progress on certain cost savings initiatives. This earnings report concludes a challenging year for FedEx stock, which has seen nearly a 20% decline in its value since the beginning of 2025.
