01—Abstract
Summary
Summary of the 10-Q filed December 18, 2025. Cited figures are marked; the original filing is the authoritative source.
FedEx's fiscal second quarter 2026 (three months ended November 30, 2025) showed a strong earnings rebound.
Revenue rose 7% to $23.5 billiona, and operating income climbed 31% to $1.38 billion, lifting the operating margin 110 basis points to 5.9%. Diluted EPS was $4.04, up 33% from $3.03. Federal Express drove the improvement, with segment operating income up 47% on higher U.S. domestic and international priority yields, structural cost savings from business optimization programs, and stronger U.S. domestic package volume.
FedEx Freight was the clear laggard, with operating income down 71% to $90 millionb on weak industrial demand, lower shipments, and $152 million of spin-off costs in the quarter. For the first half of fiscal 2026, operating income rose 20% to $2.56 billion and diluted EPS was $7.50, up 20%. Cash from operations increased to $3.67 billion from $2.51 billion, supported largely by working capital changes.
Capital expenditures fell to $1.38 billionc, and cash ended the period at $6.57 billion. Total debt stood at roughly $21.2 billion, with a debt-to-adjusted-EBITDA ratio of 1.9x against a 3.5x covenant. Management guided 2026 capital expenditures to about $4.5 billion, up $0.4 billion, mainly for Network 2.0, and expects an incremental $1.0 billion in structural cost savings from DRIVE and Network 2.0 in 2026.
The key investor watch items are the planned spin-off of FedEx Freight by June 1, 2026, the change in fiscal year-end to December 31 effective June 1, 2026, and the macro risks that management flagged, including international export volume pressure from trade policy changes, inflation and elevated interest rates, and the FAA grounding of MD-11 aircraft. The filing also discloses a pending appeal in a tax refund case that could require reversing a previously recorded $249 milliond benefit. Management says there were no material changes to risk factors from the FY2025 10-K.
02—Key points
Key Highlights
- Revenue rose 7% to $23.47B in Q2 FY26 and 5% to $45.71B for the first half, driven by U.S. domestic and international priority yield gains and higher U.S. domestic package volume, partly offset by lower international export volume and the expiration of the USPS contract.
- Operating income grew 31% to $1.38B in the quarter (operating margin 5.9%, up 110 bp), and 20% to $2.56B for the first half. Federal Express operating income rose 47% in the quarter, while FedEx Freight fell 71% to $90M.
- Diluted EPS was $4.04 in Q2 (up 33% from $3.03) and $7.50 for the first half (up 20%). Results include $205M of Q2 FedEx Freight spin-off costs ($0.72 per diluted share) and $8M of fiscal year change costs.
- Business optimization costs fell sharply to $30M in Q2 from $326M a year earlier, reflecting completion of the Europe workforce reduction and DRIVE savings. Management expects an incremental $1.0B in structural cost reductions from DRIVE and Network 2.0 in 2026.
- Liquidity is strong: cash of $6.57B, $3.5B of available credit under $3.5B in committed facilities, and a 1.9x debt-to-adjusted-EBITDA ratio versus a 3.5x covenant limit. Total debt is about $21.2B, and the company issued €850M of notes in July 2025. The Credit Agreements were amended and extended to 2028 and 2030 in anticipation of the spin-off.
- Shareholder returns continued: $776M of buybacks in the first half (3.3M shares at $233.07), $1.3B remaining under the 2024 program, and a $1.45 quarterly dividend. Capital expenditures are guided to about $4.5B for 2026, up $0.4B, driven by Network 2.0 and facility modernization.
- Key risks include the planned FedEx Freight spin-off by June 1, 2026, the fiscal year-end change to December 31, a potentially prolonged MD-11 grounding, and trade policy and industrial softness pressuring international export and LTL volumes. A pending government appeal could force reversal of a $249M tax benefit.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2026filed December 18, 2025Financial Statements
Q2 FY2026 against Q2 FY2025
| Line item | Q2 FY2026Q2 FY2025 | Change |
|---|---|---|
| Revenue | $20.43B$21.97B | −7.0% |
| Operating Expenses | $19.46B$20.91B | −7.0% |
| Operating Income | $972.00M$1.05B | −7.6% |
| Net Income | $920.00M$741.00M | +24.2% |
| EPS (Basic) | $4.07$3.06 | +33.0% |
| EPS (Diluted) | $3.89$3.03 | +28.4% |
| Shares Outstanding (Basic) | 236.00M242.00M | −2.5% |
| Shares Outstanding (Diluted) | 237.00M244.00M | −2.9% |
05—Questions
Frequently Asked Questions
Why did FedEx's operating income rise so sharply despite soft demand in some segments?
The increase was driven mainly by higher U.S. domestic and international priority yields at Federal Express, structural cost savings from DRIVE and Network 2.0, and much lower business optimization costs ($30M versus $326M a year earlier). Higher U.S. domestic package volume also contributed. These gains outweighed headwinds such as higher wage rates, purchased transportation costs, variable incentive compensation, higher credit losses, and spin-off costs.
What is the outlook for FedEx Freight, and how will the spin-off affect investors?
FedEx Freight operating income fell 71% in the quarter because of weaker industrial demand, lower average daily shipments (down 4%), and $152M of spin-off costs. Management expects the spin-off to be completed by June 1, 2026, as a tax-free distribution to FedEx stockholders. Management also expects the separation to be significant in cost but not to adversely affect liquidity. Investors should watch the new company's standalone economics and how the remaining FedEx's cost structure and capital allocation change after the separation.
Is FedEx's balance sheet and liquidity under pressure from the spin-off, buybacks, and capital spending?
No material pressure is evident. Cash rose to $6.57B and operating cash flow was $3.67B for the first half. The debt-to-adjusted-EBITDA ratio is 1.9x against a 3.5x covenant. Credit ratings are BBB (S&P) and Baa2 (Moody's), both stable. Management says cash, operating cash flow, and available financing are adequate for operations, capital spending, pension contributions, dividends, and buybacks. Capital expenditures are guided higher to about $4.5B in 2026.
What are the main risks to FedEx's 2026 results disclosed in this filing?
Key risks include international export volume pressure from evolving trade policy (including the removal of the de minimis exemption), inflation and elevated interest rates that are weighing on consumer and business spending, and softness in industrial activity affecting FedEx Freight. A prolonged FAA-mandated MD-11 grounding could materially reduce capacity and results for the rest of 2026. Separately, the U.S. government has appealed a court ruling in FedEx's favor on a tax refund claim; if FedEx loses, it may have to reverse a $249M previously recorded benefit.
What do the fiscal year-end change and the Q2 timing mean for comparing future results?
FedEx plans to change its fiscal year-end from May 31 to December 31, effective June 1, 2026. This will create a transition period and shift the comparison basis for future periods, so investors should expect changes in reporting periods and possibly comparability adjustments. Fiscal year change costs were $12M in the first half, and the company is still evaluating the One Big Beautiful Bill Act's effect on its tax rate and cash taxes.
06—Continue