Shares of FedEx rose by more than 5% in premarket trading on Friday after the parcel delivery company reported stronger-than-expected profit and revenue for its fiscal first quarter.
The results came despite ongoing tariff-related uncertainty and the end of the “de minimis” exemption on low-value shipments, which many analysts had feared would weigh heavily on earnings.
The performance underscored both the resilience of US consumer demand and FedEx’s ability to adapt its business model through cost-cutting measures and strategic pivots in its shipping network.
Cost cuts and efficiency drive margins higher
FedEx has embarked on a sweeping $1 billion cost-reduction program aimed at improving efficiency by the end of its fiscal year in May 2026.
Measures include grounding aircraft, shuttering certain facilities, and merging business units.
These efforts have begun to pay off, with operating margins climbing to 6% in the quarter from 5.2% a year earlier.
Adjusted profit per share rose to $3.83 from $3.60 in the prior year, defying Wall Street forecasts of a decline.
Revenue per package also increased by 2%, reflecting higher yields and efficiency gains.
“FedEx’s solid F1Q and issuance of a FY26 guide was a positive surprise for a company that has been battered by a wide array of headwinds, although we note the bar was relatively low heading into the print,” JP Morgan analysts wrote in a note.
Domestic demand, pivot to SE Asia, Europe, offsets weakness in China
A key driver of FedEx’s outperformance was strength in its domestic market.
US average daily volumes rose 5% in the quarter, supported by strong consumer spending and seasonal demand, including a boost from Amazon’s Prime Week in July.
Overall daily volumes climbed 4%, countering a 3% decline in international exports, particularly shipments from China.
Chief Customer Officer Brie Carere said FedEx’s commercial teams had shifted focus toward Southeast Asia and Europe to compensate for softness in the China trade.
“Knowing our strongest international lane would be under pressure, we pivoted the commercial team and they have done a tremendous job capturing demand out of Southeast Asia and Europe,” she said.
The company also highlighted that the first quarter marked its best period of new business in Europe in two years, with growth driven both within the region and across transatlantic routes.
Tariff and policy headwinds remain
Despite the strong quarter, FedEx executives cautioned that global trade policies remain a significant drag.
The end of the de minimis exemption for shipments under $800 from China and Hong Kong reduced quarterly revenue by $150 million, a hit that the company expects to repeat each quarter this fiscal year.
Combined with other tariff-related pressures, FedEx estimates the impact will amount to $1 billion by fiscal 2026.
Chief Executive Raj Subramaniam said the company has already reduced trans-Pacific outbound capacity by 25% in response to weaker Chinese exports.
“US tariffs are expected to add $1 billion in costs during fiscal 2026,” he noted.
Still, Carere stressed that FedEx does not believe sales growth in the latest quarter was driven by customers rushing to ship ahead of tariff changes, pointing instead to genuine resilience in American consumer demand.
Analysts eye Amazon volumes and holiday season
Market observers believe FedEx has room for further growth despite international challenges.
Analysts at Daiwa Capital Markets said revenue drivers include an expected ramp-up of Amazon-related volumes, yield improvements, and the absence of prior headwinds linked to the US Postal Service.
They forecast mid-to-high single-digit volume growth during the peak holiday season.
Shares of United Parcel Service also gained more than 1% on Friday in sympathy with FedEx’s upbeat report.
Valuations and outlook
FedEx currently trades at 11.83 times its projected 12-month forward earnings, slightly below UPS’s 12.04 multiple.
However, both stocks continue to lag the broader market this year, reflecting softening global industrial demand and a shift among customers toward lower-cost ground shipping.
Even so, analysts suggest FedEx’s stronger cost discipline, improved margins, and resilience in US demand provide a firmer footing heading into the holiday season.
While tariffs remain a significant headwind, the company’s pivot toward domestic shipping and growth in Europe may help it weather geopolitical and trade-related challenges.
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