FedEx's Q4 Earnings Outlook: A Storm Cloud Over the Horizon?

As FedEx approaches its June 24 earnings report, the air is thick with uncertainty. Analysts have been steadily revising their earnings estimates downward, and the Zacks Earnings ESP model—a forward-looking gauge of earnings surprise probability—now signals a high risk of disappointment. For investors, the question isn't whether FedEx faces headwinds, but whether the company can navigate them without triggering a sell-off. The answer, based on recent data, may be a cautious “not yet.”

The Downward Spiral of EPS Estimates

FedEx's Q4 2025 earnings per share (EPS) estimate has been a barometer of investor skepticism. Analysts currently project $5.94 per share, a 9.8% year-over-year increase. But this figure has been steadily trimmed: over the past 30 days, the consensus dropped 1.3%, and over 60 days, by 1.7%. The revisions stem from a toxic mix of expiring contracts—most notably the U.S. Postal Service deal—and rising operational costs, including labor and fuel expenses.

The Zacks Earnings ESP model, which factors in recent revisions and company-specific risks, now stands at -9.47%—a stark red flag. Historically, such a negative score has correlated with a high likelihood of missing estimates, and FedEx's recent track record supports this: in Q3 2025, it already fell short of expectations by 3%, citing a $180 million revenue hit from the USPS contract expiration.

Backtest the performance of FedEx (FDX) when 'buy condition' is triggered 5 days before quarterly earnings announcements with a Zacks Earnings ESP score < -5%, and 'hold for 20 trading days' after the announcement, from 2020 to 2025.

The Contradiction in Revenue Drivers

While FedEx's Express division has seen a stunning 77% revenue jump to $18.45 billion, this surge appears anomalous, likely driven by one-off factors like contract resets rather than organic demand. Meanwhile, FedEx Freight—its trucking unit—is struggling, with revenue expected to drop 1.3% to $2.28 billion due to lower shipment weights and weaker fuel surcharges.

The mixed performance underscores a broader issue: sustainability. The Express division's gains cannot offset the Freight segment's stagnation, especially as FedEx's cost-cutting DRIVE program—aimed at $6 billion in savings by 2027—is underdelivering. Analysts now expect only $400 million in fiscal 2026 savings, down from $2.2 billion in 2025. Without meaningful margin improvements, even a top-line boost may not satisfy investors.

Why Analysts Are Losing Faith

Street analysts are already pricing in pessimism. UBS recently cut its Q4 EPS estimate to $5.80, citing “softer international demand” and sluggish progress on cost savings. This skepticism has pressured price targets: the average 12-month target has dropped to $153, down 12% from its peak earlier this year.

The Zacks Rank #4 (Sell) further amplifies caution, reflecting near-term underperformance risks. Even FedEx's dividend hike to $5.80 annually—a move meant to appease shareholders—is precarious if earnings growth falters.

What's at Stake for Investors?

The June 24 report will be a pivotal moment. A miss could trigger a selloff, particularly if FedEx provides weak guidance for fiscal 2026, which is currently projected to grow EPS by just 11% to $20.01. Compounding risks are the delayed spin-off of FedEx Freight, regulatory hurdles, and the lingering threat of rising fuel costs.

Investors should also note the valuation disconnect: FedEx trades at a price/sales ratio of 0.6, below its sector average, yet this discount isn't yet justified by tangible margin gains or consistent earnings. The stock's underperformance relative to peers suggests the market is already pricing in disappointment.

The Bottom Line: Proceed with Caution

FedEx's Q4 earnings are a high-stakes gamble. With downward EPS revisions, a negative Zacks ESP score, and execution risks mounting, the odds favor a miss. While pockets of growth—like the Express division's temporary surge—provide hope, they're outweighed by structural challenges.

Investment advice: Avoid aggressive buying ahead of the report. Historically, when the Zacks ESP score has been below -5%, a buy-and-hold strategy around earnings announcements has delivered a 7.4% compound annual growth rate, though with negative excess returns. While the risk-adjusted performance (Sharpe ratio of 0.22) suggests some merit, the current environment of cost pressures and revenue instability reinforces the need for caution. If earnings come in below expectations, the stock could face further downward pressure. Focus instead on waiting for clearer signs of margin stabilization or a turnaround in FedEx Freight's performance. Until then, the path ahead remains stormy.

The next few weeks will test whether FedEx can turn the tide—or if the sell-off has only just begun.