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FDX Aims to Trim Costs Amid Weak Demand: What Lies Ahead?
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Key Takeaways
FDX's DRIVE program delivered $1.8B FY24 savings and $2.2B more in FY25 as volumes softened.
FedEx expects over $1B FY26 savings from Network 2.0, cutting flights, parking aircraft and trimming staff.
FDX beat Q3 EPS and revenues on cost cuts and raised FY26 guidance to 6-6.5% revenue growth.
FedEx (FDX - Free Report) is restructuring its cost base through a company-wide initiative called DRIVE to adapt to post-pandemic business conditions. The program generated $1.8 billion in permanent savings in fiscal 2024, followed by an additional $2.2 billion in fiscal 2025.
Ongoing geopolitical uncertainty and persistent inflation continue to weigh on consumer sentiment and growth expectations. The resulting economic turbulence has led to weaker shipping volumes. In response to these challenges, FedEx is intensifying its cost-cutting efforts. Improved operational efficiency driven by prudent cost-cutting measures is a tailwind for the company, which anticipates permanent cost reductions of more than $1 billion in transformation-related savings from structural cost reductions and the advancement of Network 2.0 in fiscal 2026.
These measures include reducing flight frequencies, parking aircraft and trimming its workforce. In March, FedEx reported better-than-expected earnings per share and revenues for the third quarter of fiscal 2026, largely driven by cost reductions. Apart from the better-than-expected results, FDX has also raised its full-year fiscal 2026 guidance for revenues and earnings.
For fiscal 2026, FedEx now expects revenue growth in the range of 6-6.5% on a year-over-year basis (prior view: up 5-6%). EPS, after excluding costs related to business optimization initiatives, the planned spin-off of FedEx Freight and the planned change in the company's fiscal year-end, is now expected to be between $19.30 and $20.10 compared with the prior guided range of $17.80 to $19.00.
Meanwhile, rival United Parcel Service (UPS - Free Report) is undertaking similar cost-cutting measures to navigate the soft demand environment. Recently, UPS inked a deal with the Teamsters National Negotiating Committee, placing limits on severance offers while safeguarding and prioritizing the seniority of Teamsters drivers. Under the new settlement, UPS will face restrictions on the number of severance packages it can offer. Eligible drivers who choose early retirement will receive payments of $150,000.
As part of the restructuring and cost-cutting efforts, UPS announced on the fourth-quarter 2025 conference call last month that it would eliminate up to 30,000 operational jobs and close multiple facilities by 2026. This move aims to reduce reliance on Amazon. com (AMZN - Free Report) deliveries and pivot toward more profitable business endeavors.
We remind investors that in 2025, UPS’ management reached an agreement in principle with Amazon to cut its shipment volume by more than 50% by June 2026. CEO Carol Tomé stated that Amazon was not UPS’ most profitable customer. The planned volume reduction is prompting UPS to adjust and right-size its network accordingly.
FDX’s Price Performance, Valuation & Estimates
Shares of FDX have gained in excess of 55% in the past six months, outperforming its industry.
6-Month Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, FDX trades at a 12-month forward price-to-sales ratio of 0.95X, making it cheap compared with industrial levels.
Image Source: Zacks Investment Research
See how the Zacks Consensus Estimate for FDX’s earnings has been revised over the past 90 days.
View the Zacks #1 Rank List
Image: Bigstock
FDX Aims to Trim Costs Amid Weak Demand: What Lies Ahead?
Key Takeaways
FedEx (FDX - Free Report) is restructuring its cost base through a company-wide initiative called DRIVE to adapt to post-pandemic business conditions. The program generated $1.8 billion in permanent savings in fiscal 2024, followed by an additional $2.2 billion in fiscal 2025.
Ongoing geopolitical uncertainty and persistent inflation continue to weigh on consumer sentiment and growth expectations. The resulting economic turbulence has led to weaker shipping volumes. In response to these challenges, FedEx is intensifying its cost-cutting efforts. Improved operational efficiency driven by prudent cost-cutting measures is a tailwind for the company, which anticipates permanent cost reductions of more than $1 billion in transformation-related savings from structural cost reductions and the advancement of Network 2.0 in fiscal 2026.
These measures include reducing flight frequencies, parking aircraft and trimming its workforce. In March, FedEx reported better-than-expected earnings per share and revenues for the third quarter of fiscal 2026, largely driven by cost reductions. Apart from the better-than-expected results, FDX has also raised its full-year fiscal 2026 guidance for revenues and earnings.
For fiscal 2026, FedEx now expects revenue growth in the range of 6-6.5% on a year-over-year basis (prior view: up 5-6%). EPS, after excluding costs related to business optimization initiatives, the planned spin-off of FedEx Freight and the planned change in the company's fiscal year-end, is now expected to be between $19.30 and $20.10 compared with the prior guided range of $17.80 to $19.00.
Meanwhile, rival United Parcel Service (UPS - Free Report) is undertaking similar cost-cutting measures to navigate the soft demand environment. Recently, UPS inked a deal with the Teamsters National Negotiating Committee, placing limits on severance offers while safeguarding and prioritizing the seniority of Teamsters drivers. Under the new settlement, UPS will face restrictions on the number of severance packages it can offer. Eligible drivers who choose early retirement will receive payments of $150,000.
As part of the restructuring and cost-cutting efforts, UPS announced on the fourth-quarter 2025 conference call last month that it would eliminate up to 30,000 operational jobs and close multiple facilities by 2026. This move aims to reduce reliance on Amazon. com (AMZN - Free Report) deliveries and pivot toward more profitable business endeavors.
We remind investors that in 2025, UPS’ management reached an agreement in principle with Amazon to cut its shipment volume by more than 50% by June 2026. CEO Carol Tomé stated that Amazon was not UPS’ most profitable customer. The planned volume reduction is prompting UPS to adjust and right-size its network accordingly.
FDX’s Price Performance, Valuation & Estimates
Shares of FDX have gained in excess of 55% in the past six months, outperforming its industry.
6-Month Price Performance
From a valuation standpoint, FDX trades at a 12-month forward price-to-sales ratio of 0.95X, making it cheap compared with industrial levels.
See how the Zacks Consensus Estimate for FDX’s earnings has been revised over the past 90 days.
FDX’s Zacks Rank
FDX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.