Federal Express Stock Drops 5% Despite 40 Billion Dollar Cost Cut

Federal Express, a prominent global logistics company, reported its quarterly earnings on Tuesday, exceeding market expectations. The company announced that it has achieved its target of reducing costs by 40 billion dollars and plans to further cut expenses by 10 billion dollars in the new fiscal year. However, the company's stock price fell by more than 5% in after-hours trading due to lower-than-expected earnings guidance for the current quarter. By the end of Tuesday's trading, the stock had fallen by more than 18% for the year.

The company's net income for the fourth fiscal quarter, ending May 31, was 16.5 billion dollars (6.88 dollars per share), up from 14.7 billion dollars (5.94 dollars per share) in the same period last year. After adjusting for one-time items such as retirement benefit accounting costs, earnings per share were 6.07 dollars. The company's daily package volume in the United States increased by 6% year-over-year, with ground residential delivery volume increasing by 10%.

Adjusted earnings per share were 6.07 dollars, compared to analysts' expectations of 5.84 dollars. Revenue was 222.2 billion dollars, slightly higher than 221 billion dollars in the same period last year, and above market expectations of 217.9 billion dollars. For the entire fiscal year, the company's revenue was 879 billion dollars, up from 877 billion dollars in the previous fiscal year.

As a barometer of the global economy, Federal Express and its competitor United Parcel Service cover a wide range of business areas. The company reported that its capital expenditure for the 2025 fiscal year will be reduced to 41 billion dollars, a 22% decrease from the previous fiscal year's 52 billion dollars, the lowest proportion of capital expenditure to revenue in the company's history. This is due to the DRIVE transformation plan launched in the 2023 fiscal year, which aims to enhance long-term profitability. On Tuesday, the company confirmed that it had achieved its target of reducing costs by 40 billion dollars by the end of the 2025 fiscal year, using the 2023 fiscal year as the baseline.

For the 2026 fiscal year, the company proposed a new cost reduction plan of 10 billion dollars, but did not provide a full-year earnings forecast. The first quarter guidance for the 2026 fiscal year shows that revenue is expected to be flat to up 2% year-over-year, better than market expectations of a 0.1% decline; however, the forecast range for adjusted earnings per share of 3.40-4.00 dollars is slightly below the market expectation of 4.06 dollars.

The company's chief financial officer stated during a conference call with investors on Tuesday that changes in global trade policies would create a 1.7 billion dollar headwind for international export business in the first quarter. The executive vice president and chief customer officer added that this impact "primarily comes from Sino-US trade, with most of it stemming from the minimum tax-exempt threshold policy" (referring to tax provisions for low-value goods).

Federal Express and United Parcel Service have been locked in a long-term battle for market share, while demand from manufacturing and other industrial customers remains weak. As more customers shift from high-priced air freight to lower-cost truck and rail freight, the profit margins of express delivery companies are under increasing pressure. The two companies have relied on air cargo volume from cross-border e-commerce companies such as Temu and SHEIN to make up for the loss of enterprise customer business. However, following the failure of policy adjustments at the beginning of the year, the Trump administration canceled the tax-exempt treatment for packages valued below 800 dollars sent directly to consumers from China in May, resulting in millions of air cargo packages from retailers such as Temu and SHEIN being held up.

In December of last year, Federal Express announced its long-awaited plan to spin off its freight division, with the tax-free spin-off expected to be completed within 18 months, resulting in two publicly traded companies. A few days before the release of the quarterly earnings report, the company's founder and executive chairman passed away at the age of 80. He stepped down as chief executive officer in 2022 and was succeeded by Subramaniam.