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, facilities services, security, and temporary labor), insurance, professional fees, and credit losses.

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 February 28, 2026 and 2025:

Overview

Operating income increased 4% in the third quarter and 14% in the nine months of 2026 primarily due to higher yields for our U.S. domestic and international priority package services, continued structural cost reductions from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and increased U.S. domestic package demand at Federal Express. Operating income for the third quarter and nine months of 2026 was negatively affected by higher salaries and employee benefit expense, the financial impact of global trade policy changes, increased costs related to the planned spin-off of FedEx Freight, higher purchased transportation rates, and the grounding of our MD-11 fleet. The increase in salaries and employee benefits was primarily driven by higher variable incentive compensation, wage rates, and employee benefit expenses.

Operating income includes separation and other costs of $202 million in the third quarter and $460 million in the nine months of 2026. These costs are related to the planned spin-off of FedEx Freight and fiscal year change and are primarily related to professional services and an employee incentive plan. In the third quarter of 2025, we incurred $23 million of costs related to the planned spin-off, consisting of $18 million included in other, net, related to a debt exchange offer and consent solicitation transaction and $5 million of professional fees included in separation and other costs. See the “Separation and other costs” section of this MD&A for more information.

Operating income includes business optimization expenses of $65 million in the third quarter and $162 million in the nine months of 2026 related to ongoing network optimization through Network 2.0, international operational transformation initiatives, and structural and overhead cost‑reduction initiatives under our DRIVE program commenced in prior years. We incurred business optimization costs

-27- of $179 million in the third quarter and $633 million in the nine months of 2025 related to our transformation initiatives. See the “Business Optimization Costs” section of this MD&A for more information.

During the nine-month period ended February 28, 2026, we repurchased 3.3 million shares of FedEx common stock through open market transactions at an average price of $233.07 per share for a total of $776 million. We did not repurchase common stock in the three-month period ended February 28, 2026. Share repurchases had a benefit of $0.12 per diluted share for the first nine months of 2026. As of February 28, 2026, $1.3 billion remained available to be used for repurchases under the stock repurchase program approved by our Board of Directors in 2024. 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.

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 8% in the third quarter and 6% in the nine months of 2026 primarily due to U.S. domestic and international priority base yield improvements, increased U.S domestic package volume, and favorable exchange rates at Federal Express, partially offset by lower shipments at FedEx Freight and decreased fuel surcharges at Federal Express.

Federal Express segment revenue increased 10% in the third quarter and 8% in the nine months of 2026 primarily due to higher U.S. domestic and international priority package base yields, increased U.S. domestic package volumes, and favorable exchange rates, partially offset by the negative impacts from global trade policy changes and lower fuel surcharges.

FedEx Freight segment revenue decreased 5% in the third quarter and 3% in the first nine months of 2026 primarily due to lower volume resulting from macroeconomic conditions, partially offset by increased weight per shipment.

Revenue at Corporate, other, and eliminations decreased in the first nine months of 2026 primarily due to lower 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 February 28, 2026 and 2025:

Salaries and employee benefits expense increased 12% in the third quarter and 7% in the nine months of 2026 primarily driven by higher variable incentive compensation, wage rates, and employee benefit expenses, and unfavorable exchange rate impacts. Purchased transportation expense increased 8% in the third quarter and 6% in the nine months of 2026 primarily due to volume-related costs to support higher package volume and contracted service provider rates. Other operating expenses increased 8% in the third

-30- quarter and 8% in the nine months of 2026 primarily due to higher outside service contracts and professional fees, increased credit losses, and unfavorable exchange rates.

Separation and Other Costs

FedEx Freight separation

We incurred costs related to the planned spin-off of FedEx Freight of $195 million ($147 million, net of tax, or $0.61 per diluted share) in the third quarter of 2026 and $443 million ($351 million, net of tax, or $1.47 per diluted share) in the nine months of 2026. These costs primarily consist of professional services and an employee incentive plan related to the planned spin-off. Separation costs of $194 million and $440 million for the three- and nine-month periods ended February 28, 2026, respectively, are included within the “Separation and other costs” caption and separation costs of $1 million and $3 million for the three- and nine-month periods ended February 28, 2026, respectively, are included in the “Other, net” caption of the accompanying unaudited condensed consolidated statements of income. These costs are included in FedEx Freight; Corporate, other, and eliminations; and Federal Express. In the third quarter of 2025, we incurred $23 million ($17 million, net of tax, or $0.07 per diluted share) of costs related to the planned spin-off, consisting of $18 million included in the “Other, net” caption, related to the debt exchange offer and consent solicitation transactions and $5 million of professional fees included in the “Separation and other costs” caption. Costs included in the “Separation and other costs” caption for the three- and nine-month periods ended February 28, 2025 were reclassified from the “Other” caption to conform to the current period presentation. This change had no impact on total operating income or net income. These costs are included in Corporate, other, and eliminations. Additionally, “Separation and other costs, net of payments” of $4 million were reclassified from “Changes in assets and liabilities: Accounts payable and other liabilities” in the unaudited condensed consolidated statements of cash flows for the nine-month period ended February 28, 2025.

Fiscal year change

We incurred costs related to the fiscal year change of $8 million ($6 million, net of tax, or $0.02 per diluted share) in the third quarter of 2026 and $20 million ($15 million, net of tax, or $0.06 per diluted share) in the nine months of 2026. These costs were primarily related to professional fees and are included in Federal Express and Corporate, other, and eliminations. We did not incur any fiscal year change costs in the nine months of 2025.

Business Optimization Costs

Our business optimization costs relate 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, our international operational transformation programs, our DRIVE initiatives commenced in prior years, and the Europe workforce reduction plan announced in June 2024.

We incurred business optimization costs of $65 million ($49 million, net of tax, or $0.21 per diluted share) in the third quarter and $162 million ($126 million, net of tax, or $0.53 per diluted share) in the nine months of 2026. These costs were primarily related to professional services, incentive payments to our contracted service providers in support of Network 2.0, and severance and are included in Federal Express and Corporate, other, and eliminations. We incurred business optimization costs of $179 million ($137 million, net of tax, or $0.56 per diluted share) in the third quarter and $633 million ($484 million, net of tax, or $1.98 per diluted share) in the nine months of 2025. These costs were primarily related to professional services and severance and are included in Federal Express and Corporate, other, and eliminations.

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 390 locations in the U.S. and Canada as of February 28, 2026. 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.

International operational transformation programs

In January 2026, FedEx initiated operational transformation programs in certain international locations designed to modernize, streamline, and optimize international domestic operations. These transformation programs may reduce approximately 5,000 operational employees, as well as changing working locations and schedules for up to 800 operational employees and is expected to occur over approximately 18 months, subject to required consultation processes in accordance with local regulations.

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We expect the combined pre‑tax costs of severance benefits, legal and professional fees, and facilities‑related exit costs to range from $225 million to $325 million, substantially all of which are cash expenditures. These charges are expected to be incurred through calendar year 2028 and will be recorded as business optimization expenses. In the third quarter of 2026, we incurred $16 million of costs related to this program. The timing and amount of our business optimization expenses and the related cost savings associated with this operational transformation program are dependent on local country consultation processes and regulations and negotiation social plans and may change as we revise and implement our plans.

Europe workforce reduction plan

Our workforce reduction plan in Europe to reduce structural costs announced in June 2024 is substantially complete as of February 28, 2026. The plan occurred over an 18-month period in accordance with local country processes and regulations and impacted approximately 1,400 employees across back-office and commercial functions. 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 activities have been recorded as business optimization expenses. In the third quarter of 2026 and 2025, we incurred $2 million and $44 million, respectively, of costs related to this plan. In addition, in the nine months of 2026 and 2025, we incurred $11 million and $220 million, respectively. 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.

Income Taxes

Our effective tax rate was 16.4% for the third quarter and 23.1% for the nine months of 2026 compared to 23.0% for the third quarter and 24.1% for the nine months of 2025. The third quarter 2026 tax rate is lower than the third quarter 2025 tax rate due to the inclusion of incremental favorable one-time tax benefits, which includes $99 million from the reduction of a valuation allowance on certain foreign tax loss carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset in that jurisdiction.

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 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. The government filed its opening appellant brief on January 7, 2026 and our response is due March 23, 2026. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

Outlook

Based on current trends, we expect revenue growth to continue into the remainder of 2026, driven by U.S. Domestic service offerings. We expect international revenue to remain pressured as the current trade and geopolitical environment remains highly uncertain, including recent escalation in the Middle East, which continued to increase fuel prices and drive high volatility in shipping patterns globally. In addition, softness in the industrial economy is expected to continue pressuring demand for our Freight LTL services.

We continue to execute on our revenue quality strategy through surcharge management and optimizing our customer and service mix, and aligning our cost base with demand. We will also continue our focus on business optimization, where we are on track to achieve 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.

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Our capital expenditures for 2026 are now expected to be approximately $4.1 billion, consistent with 2025 levels. Aircraft spend is expected to decline to approximately $1.0 billion, $0.3 billion lower than 2025. This reduction will be offset by an increase of $0.3 billion to support ongoing Network 2.0 initiatives, as well as modernization of global facilities and package handling equipment.

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.

The uncertainty of a slowdown in the global economy, global inflation, geopolitical challenges including recent escalation in the Middle East, 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.

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 new digital revenue streams using proven FedEx intelligence to digitize supply chains and create new opportunities for 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 improved in the third quarter and nine months of 2026 reflecting lower business optimization costs at corporate headquarters and FedEx Dataworks, and decreased purchased transportation at FedEx Logistics.

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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 the third 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.

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 February 28, 2026 and 2025:

(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 February 28, 2026 and 2025:

(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 10% in the third quarter and 8% in the nine months of 2026 primarily due to improved U.S. domestic and international priority package base yields, increased U.S. domestic package volumes, and favorable exchange rates, partially offset by the negative impacts from global trade policy changes and decreased fuel surcharges. Improved base yields and U.S. domestic package volumes reflect strong residential e‑commerce growth in the U.S. domestic business, while international performance benefitted from increased business‑to‑business demand.

Volume

U.S. deferred package volume increased 9% in the third quarter and 10% in the nine months of 2026 driven by peak-related growth. U.S. priority package volume increased 6% in the third quarter and 5% in the nine months of 2026 supported by growth in demand by business-to-business customers. U.S. ground package volume increased 4% in the third quarter and 5% in the nine months of 2026 benefitting from higher home delivery and economy package volumes driven by increased business-to-consumer volume.

International export package volume increased 2% in the third quarter primarily driven by higher business‑to‑business demand in Asia Pacific and Europe, offsetting the negative impacts of global trade policy changes. In the first nine months of 2026, international export package volumes decreased 1% primarily due the impacts of global trade policy changes.

Total average daily freight pounds increased 4% in the third quarter driven by international priority freight volume increases. In the first nine months of 2026, total average daily freight pounds decreased 4% reflecting the reduction of postal‑related volumes following the expiration of our contract with the U.S. Postal Service.

Yield

U.S. domestic composite package yield increased 5% in the third quarter and 5% in the nine months of 2026 primarily due to improved base yields.

International priority package yield increased by 11% in the third quarter and 11% in the nine months of 2026 due to increased weight per package and favorable exchange rates. International economy package yields decreased 1% in the third quarter and 4% in the nine months of 2026 due to decreased base yields, partially offset by favorable exchange rates.

Federal Express Segment Operating Income

Federal Express segment operating income increased 21% in the third quarter and 29% in the nine months of 2026 due to higher U.S. domestic and international priority package yields, continued structural cost reductions realized from business optimization initiatives, including from DRIVE initiatives commenced in prior years, and higher U.S. domestic package demand. These improvements were partially offset by increased salaries and employee benefits expense, the negative impacts from global trade policy changes including higher credit losses, higher purchased transportation rates, and the grounding of our MD-11 fleet.

Salaries and employee benefits expense increased 13% in the third quarter and 9% in the nine months of 2026 primarily due to higher variable incentive compensation, wage rates, and employee benefits expense, unfavorable exchange rates, and increased staffing to align with higher volumes in the U.S. Purchased transportation expense increased 9% in the third quarter and 8% in the nine months of 2026 primarily due to increased volume, higher rates, and unfavorable exchange rates. Other operating expense increased 10% in the third quarter and 10% in the nine months of 2026 primarily due to increased professional and outside service contract fees, credit losses from higher revenue and impacts from global trade policy changes, and customs-related brokerage fees due to the removal of the de minimis exemption.

Federal Express segment results include business optimization costs of $67 million and $95 million in the third quarter and nine months of 2026, respectively, compared to $92 million and $341 million in the same periods of 2025. Results also include $5 million and $16 million in the third quarter and nine months of 2026, respectively, of costs associated with our planned fiscal year change, and $32 million and $44 million in the third quarter and nine months of 2026, respectively, of costs associated with the planned spin-off of FedEx Freight. Federal Express did not incur any costs associated with our planned fiscal year change or the planned spin-off of FedEx Freight in the third quarter or nine months of 2025. See the “Business Optimization Costs” and “Separation and Other Costs” sections of this MD&A for more 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 February 28, 2026 and 2025:

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FedEx Freight Segment Revenue

FedEx Freight segment revenue decreased 5% in the third quarter and 3% in the first nine months of 2026 primarily due to lower volume resulting from macroeconomic conditions, partially offset by increased weight per shipment.

Average daily shipments decreased 6% in the third quarter and 4% in the nine months of 2026 due to reduced demand for our services primarily resulting from macroeconomic conditions, including continued weak industrial production, global trade policy uncertainty, and excess capacity in the LTL industry. Revenue per shipment increased 1% in the third quarter and 1% in the nine months of 2026 primarily due to increased weight per shipment.

FedEx Freight Segment Operating Income

FedEx Freight segment operating income decreased 97% in the third quarter and 55% in the nine months of 2026 primarily due tohigher costs related to the planned spin-off of FedEx Freight, including increased salaries and employee benefits expense, outside service contracts and professional fees, as well as reduced demand. These impacts were partially offset by increased revenue per shipment.

Salaries and employee benefit expenses increased 4% in the third quarter and 1% in the nine months of 2026 largely reflecting spin-off-related personnel activity, including the transfer to FedEx Freight of over 1,500 employees from Federal Express during the nine months of 2026, as well as higher wage rates, partially offset by lower volume. Other operating expense increased 17% in the third quarter and 8% in the nine months of 2026 due to increased outside service contracts and professional fees related to the planned spin-off, including incremental software license costs and other technology-related activities.

Separation and other costs of $126 million in the third quarter and $287 million in the nine months of 2026 are primarily professional fees associated with the planned spin-off. FedEx Freight did not incur any spin-off related costs in the third quarter or nine months of 2025. See the “Separation and Other Costs” section of this MD&A for more information.

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FINANCIAL CONDITION