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FedEx shares are trading lower despite delivering sizable upside on both EPS and revenue for fiscal Q2 (Nov). The company also raised the low end of its FY26 EPS and revenue guidance, increasing revenue growth expectations to +5-6% from +4-6%. Results were solid considering several external headwinds, including the unexpected grounding of its MD-11 fleet, nationwide air traffic constraints, ongoing industrial weakness, and tariff impacts.

• A recent B2B healthcare contract win drove robust growth in U.S. priority and deferred express services. Onboarding of new Amazon business, focused on large and heavyweight shipments, is progressing well. International export volumes declined, again led by weakness on the China-to-U.S. lane. Capacity shifts to the Asia-Europe lane and strong intra-Asia growth provided a partial offset.
• FedEx Express (FEC) revenue rose 8%, driven by 12% U.S. domestic package revenue growth with strength across all services. Nearly half of FEC's revenue growth came from B2B services, supporting profitability and marking the fifth consecutive quarter of yr/yr adjusted operating margin expansion.
• FedEx Freight revenue fell 2% yr/yr, with average daily shipments down 4% due to continued industrial weakness. Lower volumes were partially offset by higher weight and revenue per shipment, reflecting a focus on revenue quality. The planned spin-off of FedEx Freight (FDXF) remains on track for a June 1 target date.
• Grounding of MD-11 freighters during part of Q2 pressured adjusted operating income by about $25 mln, though network changes were implemented quickly and effectively.
• FedEx continues to execute well in its core Express and B2B-focused businesses, but persistent industrial weakness and freight softness remain a drag. Operational resilience was evident, yet investors are increasingly focused on the pace of earnings power improvement.

Briefing.com Analyst Insight:

FedEx delivered a better-than-expected Q2, particularly impressive given the number of external and self-inflicted hurdles it had to clear. However, the stock's negative reaction suggests the bar was higher. Investors were likely disappointed that management only raised the low end of FY26 guidance, rather than delivering a more decisive upward revision following the strong quarter. In addition, continued weakness in the Freight segment remains a sore spot and reinforces concerns tied to the sluggish industrial economy. While execution is solid and the Freight spin-off remains a potential catalyst, we see the near-term setup as more "prove it" than compelling after the post-earnings reaction.