FedEx's Q1 guidance is poor, and it does not provide full-year guidance, falling over 5% after hours | Earnings Report Insights

Although FedEx's Q4 performance exceeded Wall Street expectations, the management's cautious attitude towards the future has left investors quite uneasy, with the stock price dropping nearly 5% in after-hours trading.

On Tuesday after the U.S. stock market closed, FedEx delivered what appeared to be a fairly good Q4 earnings report for fiscal year 2025, with both revenue and profit exceeding Wall Street's expectations. However, the weak short-term guidance and deliberate avoidance of full-year profit forecasts raised concerns in the market:

• Financial performance: Q4 revenue for fiscal year 2025 was $22.2 billion (expected $21.8 billion); adjusted operating profit was $2.02 billion, with analysts expecting $1.91 billion; adjusted earnings per share (EPS) was $6.07 (expected $5.87). However, full-year revenue decreased slightly from $87.7 billion in fiscal year 2024 to approximately $87.4 billion.
• Cost control is a highlight: Successfully achieved the $2.2 billion structural cost reduction target for fiscal year 2025 under the DRIVE program. The company plans to further reduce costs by $1 billion in fiscal year 2026 through the DRIVE and Network 2.0 transformation plans.
• Strong capital returns: In fiscal year 2025, the company returned approximately $4.3 billion to shareholders through $3 billion in stock buybacks and $1.3 billion in dividends, exceeding the original plan. The company plans to continue large-scale stock buybacks in fiscal year 2026 and increase the annual dividend by 5%.
• Disappointing guidance: The company did not provide full-year EPS guidance for fiscal year 2026, which is a significant change. Its adjusted EPS guidance for the first quarter of fiscal year 2026 is $3.40 to $4.00, below the market's general expectation of $4.05.

It is worth noting that FedEx founder Fred Smith passed away on June 21. Media reports indicate that the 80-year-old founder had written a business plan for overnight delivery while at Yale University, which was deemed unfeasible by professors and received a C grade, but he ultimately transformed the global logistics industry with FedEx. Smith's passing coincides with a critical moment as the company faces transformation challenges. After the earnings report was released, FedEx's stock price dropped nearly 5% in after-hours trading.

"Beautiful" performance numbers and underlying concerns

According to the earnings report, FedEx achieved $22.2 billion in revenue and $6.07 in adjusted earnings per share for the fourth quarter, both exceeding analysts' expectations of $21.8 billion and $5.87.

This is mainly attributed to the company's bold cost-cutting plan—the DRIVE program. The company announced that it has successfully completed its goal of reducing $2.2 billion in structural costs for fiscal year 2025, which undoubtedly serves as a strong testament to the management's execution capabilities However, the market's focus clearly has not lingered on past achievements. The real "expectation gap" comes from the company's forward guidance.

FedEx's management provided an adjusted EPS guidance range for the first quarter of fiscal year 2026 of $3.40 to $4.00, with the midpoint significantly lower than the market's previous consensus of $4.05. More importantly, unlike the same period last year, FedEx did not provide guidance for the full-year earnings per share for fiscal year 2026.

Analysts pointed out that this sends a dangerous signal: against the backdrop of an economic slowdown and strained global trade relations, management lacks sufficient confidence and visibility regarding its profitability for the coming year. For investors relying on a clear roadmap for valuation, this is undoubtedly navigating through a fog.

Cost control is the only highlight, but how long can it last?

In the current challenging demand environment, FedEx's core narrative has shifted from "growth" to "discipline."

According to media reports, the company's DRIVE program is at the heart of its defensive strategy. Since the beginning of fiscal year 2023, the program has achieved a cumulative structural cost reduction of $4 billion. Looking ahead, the company aims to cut an additional $1 billion in permanent costs in fiscal year 2026.

At the same time, the company is strictly controlling capital expenditures, with capital expenditures for fiscal year 2025 at $4.1 billion, a 22% year-over-year decrease, bringing the ratio to revenue down to 4.6%, a historic low for the company.

Additionally, in fiscal year 2025, the company returned $4.3 billion to shareholders through buybacks and dividends, with $3 billion in stock buybacks exceeding the original $2.5 billion plan. The company has committed to continuing "strong stock buybacks" in fiscal year 2026 and increasing dividends by 5%.

Analysts pointed out that this combination of "cost-cutting + returning to shareholders" is a standard operation for mature companies facing macro headwinds. It can support profit margins and shareholder returns in the short term, but the question is, if revenue growth continues to be weak (the company expects revenue growth of only 0%-2% next quarter), how long can it rely solely on cost reductions?

Investment logic: Valuation vs. Growth dilemma

Reports indicate that from a valuation perspective, FedEx's price remains reasonable. The stock is trading at just 11 times expected earnings, well below the normal levels of 14-15 times in recent years, but low valuations often reflect challenges in the fundamentals.

The core issue facing the company is structural growth weakness: slowing e-commerce growth, weak demand for enterprise transportation, and escalating international trade frictions. While cost reductions can temporarily enhance profitability, they do not address the fundamental issues on the revenue side.

Reports suggest that future points of focus include: the impact of recession risks on B2B logistics demand, the effects of tariff policy changes on international business, the integration effects of Network 2.0, the execution of FedEx Freight's spin-off, and whether management can maintain strategic continuity after Smith's passing. Analysis suggests that in the current environment, FedEx resembles a defensive value stock rather than a growth story. Investors need to weigh the trade-off between reasonable valuation and dim growth prospects.

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