FedEx reported a solid set of third-quarter results, with revenue and earnings both moving higher year over year, while executives said the company does not expect the conflict in the Middle East to have a material effect on overall performance.
For the quarter ending Feb. 28, the group posted revenue of $24 billion, up 8.1% from the same period a year earlier. Operating income rose 4.6% to $1.35 billion, while net income climbed 16.5% to $1.1 billion.
The Federal Express segment played a key role in that improvement. Its operating performance benefited from stronger yields in US domestic and International Priority package services, ongoing savings linked to FedEx’s transformation program and increased US domestic package volumes. These gains were partly offset by higher incentive compensation costs, rising wage rates, the financial impact of global trade policy changes, increased purchased transportation rates and the continuing grounding of the company’s MD-11 freighter fleet.
FedEx said the grounding of its MD-11Fs created an adjusted operating income headwind of $120 million during the quarter, reflecting both higher operating costs and lost revenue. The company expects a further $55 million headwind in the current quarter, although it hopes the aircraft will be back in service by the end of the period.
All MD-11F aircraft were grounded after the fatal crash of a UPS MD-11 freighter that took off from Louisville on Nov. 4.
One of the more notable developments in the quarter was the return to growth in international quarterly export volumes — the first time that has happened during the current fiscal year. Brie Carere, executive vice president and chief customer officer, described that as particularly significant given the prolonged weakness on the trans-Pacific trade lane caused by ongoing shifts in the global trade environment.
She said FedEx has deliberately reallocated capacity away from the trans-Pacific, where outbound volumes were reduced by around 15% on company-operated services and 25% on third-party capacity. Much of that lift was redirected into Asia-Europe and intra-Asia markets, both of which delivered strong revenue growth, alongside continued gains in US international outbound and across the company’s European network.
On the Middle East, FedEx management struck a measured tone. The company said its outlook assumes only a modest headwind related to business activity in the region. President and chief executive Raj Subramaniam described the Middle East as a relatively small contributor to the group’s total revenue and said the company would continue monitoring developments.
Carere added that at the height of the crisis, around 20% of air cargo capacity had exited the market, but that figure has since improved and now stands closer to 10%. She said FedEx has already adjusted its pricing and currently has demand surcharges in place.
On fuel, the group also sounded confident. Carere said the company’s fuel index is updated weekly and is functioning as intended, allowing FedEx to preserve profitability despite the rise in jet fuel prices linked to the conflict.
Not all divisions moved in the same direction. FedEx Freight saw weaker operating results because of lower shipments, rising wage rates and increased expenses associated with the planned spin-off of the LTL business, although improved yield offered some offset.
The company also noted that overall net income included a $99 million tax benefit tied to the recognition of certain foreign tax loss carryforwards.
Taken together, the results suggest that FedEx is entering the final stretch of its fiscal year from a position of relative strength — with trade disruption, aircraft groundings and geopolitical volatility still weighing on operations, but not enough, at least for now, to derail profitability.
