FEDEX CORP

RESULTS OF OPERATIONS

Many of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes. The line item “Other” includes costs associated with outside service contracts (such as information technology services, temporary labor, security, and facilities services), insurance, professional fees, and credit losses.

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CONSOLIDATED RESULTS

The following tables compare summary operating results and changes in revenue and operating income (loss) (dollars in millions, except per share amounts) for the periods ended August 31, 2025 and 2024:

Overview

Operating income increased 10% in the first quarter of 2026 primarily due to improved yields for our U.S. domestic and international priority package services, structural cost reductions from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and higher U.S. domestic package demand at Federal Express. Operating income for the first quarter of 2026 was negatively affected by increased operating expenses, decreased yields for our international economy package services, lower international package export volume reflecting the negative impacts from the volatile global trade environment, the expiration of our contract with the U.S. Postal Service (“USPS”) on September 29, 2024, and lower revenue at FedEx Freight primarily due to macroeconomic conditions.

Operating income includes business optimization costs of $67 million ($52 million, net of tax, or $0.22 per diluted share) in the first quarter of 2026 related to initiatives to reduce structural and overhead costs and to drive efficiency through Network 2.0. We incurred business optimization costs of $128 million ($98 million, net of tax, or $0.39 per diluted share) in the first quarter of 2025 related to our transformation initiatives. See the “Business Optimization Costs” section of this MD&A for more information.

We incurred costs related to the planned spin-off of FedEx Freight of $43 million ($33 million, net of tax, or $0.14 per diluted share) in thefirst quarter of 2026. These costs consist of $41 million primarily related to professional services included in the “Separation and other costs” caption of the accompanying unaudited condensed consolidated statements of income, and $2 million included in the “Other, net” caption of the accompanying unaudited condensed consolidated statements of income. These costs are included in Corporate, other, and eliminations; FedEx Freight; and Federal Express. We did not incur any FedEx Freight spin-off costs in thefirst quarterof 2025.

We repurchased $500 million of our common stock in the first quarter of 2026 through open market transactions. Share repurchases had a benefit of $0.02 per diluted share for the first quarter of 2026. As of August 31, 2025, $1.6 billion remained available to be used for repurchases under the 2024 stock repurchase program. See Note 1 of the accompanying unaudited condensed consolidated financial statements, “Financial Condition –Liquidity and –Liquidity Outlook” below, and Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-Q for additional information.

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The following graphs for Federal Express and FedEx Freight show selected volume trends (in thousands) calculated on a 5-day-per-week basis over the five most recent quarters:

(1)International domestic average daily package volume relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services.

(2)International average daily freight pounds relate to our international priority and economy services.

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The following graphs for Federal Express and FedEx Freight show selected yield trends over the five most recent quarters:

(1)International export revenue per package relates to our international priority and economy services. International domestic revenue per package relates to our international intra-country operations.

(2)International freight revenue per pound relates to our international priority and economy services.

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Revenue

Revenue increased 3% in the first quarter of 2026 primarily due to base yield improvements, higher volume, and favorable exchange rates at Federal Express, partially offset by the expiration of our contract with the USPS, lower fuel surcharges, and lower shipments and base yields at FedEx Freight.

Federal Express segment revenue increased 4% in the first quarter of 2026 primarily due to improved base yields, increased U.S. domestic and international economy package volumes, and favorable exchange rates, partially offset by the expiration of our contract with the USPS, lower international priority package volume including the negative impacts from global trade policies, and lower fuel surcharges. FedEx Freight revenue decreased 3% in the first quarter of 2026 primarily due to due to lower volume and lower base yields. Revenue at Corporate, other, and eliminations decreased in the first quarter of 2026 primarily due to lower yields and demand at FedEx Logistics, Inc. (“FedEx Logistics”).

Operating Expenses

The following table compares operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended August 31, 2025 and August 31, 2024:

Operating income increased 10% in the first quarter of 2026 primarily due to improved yields for our U.S. domestic and international priority package services, structural cost reductions from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and increased U.S. domestic package demand for Federal Express. Operating income for the first quarter of 2026 was negatively affected by increased operating expenses, decreased yields for our international economy package services, lower international package volume including the negative impacts from global trade policies, the expiration of our contract with the USPS, and lower revenue at FedEx Freight primarily due to macroeconomic conditions.

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Salaries and employee benefits expense increased 4% in the first quarter of 2026 primarily due to an increase in wage rates, unfavorable exchange rates, and higher employee benefits, partially offset by lower variable incentive compensation. Purchased transportation expense increased 4% in the first quarter of 2026 primarily due to higher rates and volume. Other operating expenses increased 7% in the first quarter of 2026 primarily due to higher professional fees, credit losses, and self-insurance accruals. Fuel expense decreased 19% in the first quarter of 2026 due to lower fuel prices and the expiration of our contract with the USPS.

Business Optimization Costs

Our business optimization costs related to transformation initiatives aimed to improve long-term profitability, drive efficiency within and between our transportation segments, lower our overhead and support costs, and transform our digital capabilities. Costs included in the “Business optimization costs” caption of the accompanying unaudited condensed consolidated statements of income relate to our Network 2.0 program, the Europe workforce reduction plan, and other DRIVE initiatives commenced in prior years.

We incurred business optimization costs of $67 million ($52 million, net of tax, or $0.22 per diluted share) in the first quarter of 2026, and $128 million ($98 million, net of tax, or $0.39 per diluted share) in the first quarter of 2025. These costs were primarily related to professional services and severance and are included in Corporate, other, and eliminations and Federal Express.

Network 2.0

Network 2.0 is our multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada. Through Network 2.0, we continue to consolidate our sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimized network. We have implemented Network 2.0 optimization in approximately 360 locations in the U.S and Canada as of August 31, 2025. Service providers will handle the pickup and delivery of Federal Express packages in some locations while employee couriers will handle others. We completed Canada’s implementation of Network 2.0 in the fourth quarter of 2025 and expect to complete the U.S. implementation by the end of calendar 2027.

Europe workforce reduction plan

Our workforce reduction plan in Europe to reduce structural costs continues and is expected to impact approximately 1,400 employees across back-office and commercial functions. The execution of the plan is subject to a consultation process that is expected to occur over an 18-month period in accordance with local country processes and regulations. We expect savings from the plan to be approximately $150 million on an annualized basis beginning in calendar 2026.

We expect the pre-tax cost of the severance benefits and legal and professional fees to be provided under and related to the plan to be approximately $250 million in cash expenditures. These charges are expected to be incurred through fiscal year 2026 and will be classified as business optimization expenses. In the first quarter of 2026, we incurred $3 million of costs related to this plan. The timing and amount of our business optimization expenses and the related cost savings from the workforce reduction plan may change as we revise and implement our plans.

Separation and Other Costs

FedEx Freight separation

We incurred costs related to the planned spin-off of FedEx Freight of $43 million ($33 million, net of tax, or $0.14 per diluted share) in the first quarter of 2026. These costs consist of $41 million primarily related to professional services included in the “Separation and other costs” caption of the accompanying unaudited condensed consolidated statements of income, and $2 million included in the “Other, net” caption of the accompanying unaudited condensed consolidated statements of income. These costs are included in Corporate, other, and eliminations; FedEx Freight; and Federal Express. We did not incur any FedEx Freight spin-off costs in the first quarter of 2025.

Fiscal year change

We incurred costs related to the fiscal year change of $4 million ($3 million, net of tax, or $0.01 per diluted share) in the first quarter of 2026. These costs were primarily related to professional fees and are included in Federal Express. We did not incur any fiscal year change costs in the first quarter of 2025.

Income Taxes

Our effective tax rate was 27.3% for the first quarter of 2026 compared to 24.8% for the first quarter of 2025. The first quarter 2026 tax rate was unfavorably impacted by a non-recurring income tax expense of $16 million ($0.07 per diluted share) primarily as the result of an examination of prior year tax return filings.

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On July 4, 2025, the One Big Beautiful Bill Act was signed into law. Certain provisions within the act are interdependent and have implications for both the effective tax rate and cash taxes. We are currently in the process of evaluating these provisions.

We are subject to taxation in the U.S. and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2016 through 2021 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.

During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit sought to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $249 million attributable to our interpretation of the TCJA and the Internal Revenue Code. In March 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. On February 13, 2025, the District Court ruled again in our favor with regard to a new argument raised by the U.S. government. On June 4, 2025, the District Court validated the amount of refunds owed for 2018 and 2019, which includes the foreign tax credits previously denied. On August 1, 2025, the U.S. government filed a notice to appeal the decision to the U.S. Court of Appeals for the Sixth Circuit. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

Outlook

The uncertainty over the current trade and geopolitical environment and the impact it may continue to have on customer demand and shipping patterns globally makes expectations for our 2026 operating and financial performance inherently less clear. However, based on the current trends, we expect the industrial economy to continue pressuring demand for our higher-yielding business-to-business services in the near term, and service mix to continue shifting further toward deferred service offerings. We also expect the global trade environment to continue pressuring demand for our services, both internationally and in the U.S.

To mitigate demand challenges, we will continue to execute on our revenue quality strategy through surcharge management and optimizing our customer and service mix and alignment of our cost base with demand. We will also continue our focus on business optimization, where we expect to see an incremental $1.0 billion in structural cost reduction benefits from DRIVE and Network 2.0 in 2026.

See the “Business Optimization Costs” section of this MD&A for additional information on our transformation initiatives, including our Network 2.0 program and workforce reduction plan in Europe.

Our capital expenditures for 2026 are expected to be approximately $4.5 billion, $0.4 billion higher than 2025. The increase is driven by investment in Network 2.0 initiatives and other efforts to modernize our facilities and package handling equipment in the U.S. and international locations. Aircraft spend is expected to decline to approximately $1.0 billion, $0.3 billion lower than 2025.

We will continue to evaluate our investments in critical long-term strategic projects to ensure our capital expenditures are expected to generate high returns on investment and are balanced with our outlook for global economic conditions. For additional details on key 2026 capital projects, refer to the“Financial Condition – Capital Resources” and“Financial Condition – Liquidity Outlook” sections of this MD&A.

In December 2024, we announced that FedEx’s management and Board of Directors had decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company. The separation is expected to be executed by June 2026.

The uncertainty of a slowdown in the global economy, global inflation, geopolitical challenges, developments in international trade, and the effects these factors will have on the rate of growth of global trade, supply chains, fuel prices, and our business in particular, make any expectations for the remainder of 2026 inherently less certain. See Part I “Item 1A. Risk Factors” in our Annual Report for more information.

See the“Trends Affecting Our Business,” “Critical Accounting Estimates,” and“Forward-Looking Statements” sections of this MD&A for additional information.

RECENT ACCOUNTING GUIDANCE

See Note 1 of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.

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REPORTABLE SEGMENTS

Federal Express and FedEx Freight represent our major service lines and constitute our reportable segments. Our reportable segments include the following businesses:

The Federal Express segment operates combined sales, marketing, administrative, and information-technology functions in shared service operations for U.S. customers of our major business units and certain back-office support to FedEx Freight and our other operating segments which allows us to obtain synergies from the combination of these functions. We allocate the net operating costs of these services to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of FedEx Freight and our other operating segments based on operating income inclusive of these allocations.

Operating expenses for our FedEx Freight segment include allocations of these services from the Federal Express segment. These allocations also include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

CORPORATE, OTHER, AND ELIMINATIONS

Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, certain other costs and credits not attributed to our core business, and certain costs associated with developing integrated business solutions through our FedEx Dataworks, Inc. (“FedEx Dataworks”) operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members.

Also included in Corporate and other are the FedEx Office and Print Services, Inc. (“FedEx Office”) operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.

The results of Corporate, other, and eliminations are not allocated to the other business segments.

Operating results in Corporate, other, and eliminations were flat in the first quarter of 2026 primarily due to decreased purchased transportation costs at FedEx Logistics, offset by higher professional fees at corporate headquarters and FedEx Dataworks in the first quarter of 2026.

Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. For example, during thefirst quarter of 2026 FedEx Freight provided road and intermodal support for Federal Express. In addition, Federal Express works with FedEx Logistics to secure air charters and other cargo space for U.S. customers. Billings for such services are based on negotiated rates and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.

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FEDERAL EXPRESS SEGMENT

Federal Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the periods ended August 31, 2025 and 2024:

(1)International domestic revenue relates to our international intra-country operations.

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The following table compares selected statistics (in thousands, except yield amounts) for the periods ended August 31, 2025 and 2024:

(1)ADV is calculated on a 5-day-per-week basis.

(2)International domestic statistics relate to our international intra-country operations.

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Federal Express Segment Revenue

Federal Express segment revenue increased 4% in the first quarter of 2026 primarily due to improved base yields, increased U.S. domestic and international economy package volumes, and favorable exchange rates, partially offset by the expiration of our contract with the USPS, lower international priority package volume including the negative impacts from global trade policies, and lower fuel surcharges.

Volume:

U.S. domestic package volume increased 5% primarily due to strong demand for our U.S. economy package services. Growth in our international economy package volume of 5% in the first quarter of 2026 was more than offset by a 10% decline in international priority package volume reflecting the negative impact of global trade policies. U.S. average daily freight pounds decreased 59% in the first quarter of 2026 primarily due to the expiration of our contract with the USPS.

Yield

U.S. domestic composite package yield increased 3% in the first quarter of 2026 primarily due to improved base yields, partially offset by decreased fuel surcharges. International priority package yield increased by 13% due to increased base yields and favorable exchange rates, partially offset by decreased fuel surcharges. International economy package yields decreased 6% due to decreased base yields, partially offset by favorable exchange rates.

Federal Express Segment Operating Income

Federal Express segment operating income increased 19% in the first quarter of 2026 due to higher U.S. domestic and international priority package yields, structural cost reductions from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and higher U.S. domestic package demand, partially offset by increased operating expenses and the expiration of our contract with the USPS. The increase in operating expenses in the first quarter of 2026 was primarily driven by higher wage and purchased transportation rates and higher credit losses.

Salaries and employee benefits expense increased 5% in the first quarter of 2026 primarily due to higher wage rates, unfavorable exchange rates, increased volume, and higher employee benefits. Purchased transportation expense increased 6% in the first quarter of 2026 primarily due to higher rates, increased volume, and unfavorable exchange rates, partially offset by increased efficiency. Other operating expense increased 8% in the first quarter of 2026 primarily due to higher credit losses and self-insurance accruals. Fuel expense decreased 20% in the first quarter of 2026 due to lower fuel prices and the expiration of the USPS contract.

Federal Express segment results include business optimization costs of $21 million and $43 million in the first quarter of 2026 and 2025, respectively. In the first quarter of 2026, Federal Express segment results include $4 million of costs associated with our planned fiscal year change and $1 million of costs associated with the planned spin-off of FedEx Freight. Federal Express did not incur costs related to the fiscal year change or FedEx Freight spin-off in 2025. See the “Business Optimization Costs” and “Separation and Other Costs” sections of this MD&A for more information.

In July 2023, Federal Express’s pilots failed to ratify the tentative successor agreement that was approved by the Air Line Pilots Association, International’s FedEx Master Executive Council in the prior month. Negotiations have continued, and the ongoing bargaining process has no effect on our operations. See Note 1 of the accompanying unaudited condensed consolidated financial statements for additional information.

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FEDEX FREIGHT SEGMENT

FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following table compares revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the periods ended August 31, 2025 and 2024:

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FedEx Freight Segment Revenue

FedEx Freight segment revenue decreased 3% in the first quarter of 2026 primarily due to lower volume and lower base yields.

Average daily shipments decreased 2% in the first quarter of 2026 due to reduced demand for our services, primarily resulting from macroeconomic conditions. Revenue per shipment decreased 1% in the first quarter of 2026 primarily due to lower base yields, including weight per shipment, and fuel surcharges.

FedEx Freight Segment Operating Income

FedEx Freight segment operating income decreased 18% in the first quarter of 2026 primarily due to the decline in revenue and increase in intercompany charges and wage rates.

Intercompany charges increased 9% in the first quarter of 2026 primarily due to increased sales staffing to prepare for the planned spin-off of FedEx Freight. Fuel expense decreased 7% in the first quarter of 2026 due to fewer shipments and a decrease in fuel price. Salaries and employee benefits expense decreased 1% in the first quarter of 2026 primarily due to lower volume, partially offset by higher wage rates.

FedEx Freight segment results include costs associated with our planned spin-off of FedEx Freight of $9 million in the first quarter of 2026. FedEx Freight did not incur costs related to the FedEx Freight spin-off in 2025. See the “Separation and Other Costs” section of this MD&A for more information.

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FINANCIAL CONDITION