Post-report heavy drop of over 6%! FedEx Corporation (FDX.US) Q4 profits surpass expectations but still sold off, costs erosion and macro headwinds serve as the catalyst.

The latest financial report released by FedEx Corporation (FDX.US) shows that, despite achieving profits in the fourth quarter ending on May 31 that exceeded market expectations, the company experienced a contraction in the profit margin of its core express delivery business and a cautious outlook for the future, leading to a significant drop in stock price in after-hours trading. The financial report shows that FedEx Corporation's adjusted earnings per share for the quarter were $6.31, significantly higher than the analysts' average expectation of $5.96. Quarterly revenue increased by 12.6% year-on-year to $25 billion, also exceeding the expected $24.04 billion. However, this impressive profit performance did not overshadow the significant operational pressures the company faced. Rising costs erode profit margins Market disappointment mainly stems from the decline in the profit margin of FedEx Corporation's core Federal Express division. The operating profit margin of this division decreased from 8.4% in the same period last year to 7.7% in the current quarter. The company pointed out that the comprehensive increase in employee wages and benefits, outsourced transportation costs, fuel costs, and the grounding of the MD-11 cargo aircraft fleet constituted significant headwinds in operations during the period. The company's overall profit margin dropped to 8.4%, below analysts' expectations. Chief Financial Officer Claude R. Methanum explained during a conference call that the profit margin is expected to improve in the future as the burden related to compensation is reduced. As a barometer of the global economy, FedEx Corporation is struggling to cope with multiple macroeconomic challenges. CEO Subramaniam pointed out that the ongoing changes in global trade policies have significantly hindered operations. Tariff policies implemented by US President Trump, as well as the US's cancellation of the "de minimis" duty-free treatment for low-value e-commerce parcels from Chinese-affiliated retailers (such as Shein and Temu), have suppressed the company's freight volume. In addition, ongoing conflicts between countries have also heightened the fluctuations in trade flows. FedEx Corporation's Chief Customer Officer Bree Carroll revealed during the conference call that the company will start refunding tariffs to customers from August this year. Guidance for the new fiscal year leaves room for improvement, focusing on high-profit avenues Looking ahead, FedEx Corporation has aligned its fiscal year with the calendar year and provided new performance guidance excluding the already spun-off freight business. Adjusted earnings per share for 2026 are expected to be between $16.90 and $18.10, an increase from the estimated $15 in 2025, with revenue expected to grow by 11% in the new fiscal year. Analysts pointed out that the new profit target is "slightly below market expectations, giving management room to adjust the guidance based on annual progress." This was also one of the reasons putting pressure on the stock price. The company also expects costs to increase by approximately $2.6 billion in 2026 compared to 2025, influenced by rising wages, increasing transportation procurement costs, and other inflation-related expenses. Facing soaring costs and uneven demand, FedEx Corporation is actively working on improving profit margins, focusing on high-return segmented markets such as healthcare, aerospace, heavy goods, luxury goods, and cross-border transportation. The company also announced a $1 billion share buyback plan for 2026. Focus and challenges post-split Earlier this month, FedEx Corporation completed the spin-off listing of its freight division (FedEx Freight) in an effort to create a "purer, more focused parcel business." FedEx Freight Holding Co. (FDXF.US) entered the market as one of the largest freight companies in North America on June 1 as the industry is experiencing a fragile recovery phase following a long freight downturn, with its stock price initially fluctuating significantly and the first independent quarterly financial report soon to be released. At the same time, FedEx Corporation and its peers are facing increasing competitive pressure from Amazon.com, Inc. (AMZN.US) as it plans to expand its logistics business. Analysts at Morgan Stanley have suggested that this could be a "watershed moment" for the industry. After the financial report was released, FedEx Corporation's stock price fell more than 6% in after-hours trading, indicating that the performance did not meet investors' expectations after a significant increase in the first half of the year. In the previous quarters, the company consistently outperformed Wall Street forecasts, with the stock price up about 36% year-to-date as of Tuesday's close, far exceeding the S&P 500 index's 7.6% gain during the same period.