FedEx Q4 2025 Earnings Call Transcript

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Provided by Quartr
June 24, 2025

Key Takeaways

  • FedEx reported Q4 revenue up 1% year-over-year while adjusted operating income grew 8% and adjusted operating margin expanded by 60 bps, driven by achieving $2.2 B in DRIVE cost savings and meeting its $4 B two-year target.
  • The rollout of Network 2.0 continues, with Canada fully optimized, 100 stations closed, 290 integrated, and nearly 2.5 M daily packages flowing through optimized stations, targeting $2 B in savings by FY 27.
  • Global trade policy volatility and the expiration of the US Postal Service contract are expected to create headwinds of about $170 M and $120 M respectively in Q1 FY 26, weighing on international volumes—especially the China-US lane.
  • FedEx Freight remains under pressure from a weak industrial economy, with shipments down year-over-year despite slight yield improvements, and is set for a standalone spin-off in June 2026.
  • FedEx returned $4.3 B to shareholders in FY 25 through $3 B of share repurchases and a 5% dividend increase, while cutting CapEx to 4.6% of revenue and achieving nearly 90% free cash flow conversion.
AI Generated. May Contain Errors.
Earnings Conference Call
FedEx Q4 2025
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Operator

Good day, and welcome to the FedEx Fourth Quarter Fiscal twenty twenty five Earnings Call. All participants are in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to FedEx President and CEO, Raj Subramaniam. Please go ahead.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Thank you, operator. Before we begin, I wanna take a few minutes to honor someone who meant a great deal to this company, the business community, his beloved family, and to me personally. It feels strange to be here with you all so soon after his sudden passing, It is difficult to put into words the tremendous loss felt by all who knew Frederick w Smith. But Fred was a man grounded by a mission, and he would tell us to stay focused on the business and keep marching forward. And so we will do just that.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

But first, I wanted to share a few thoughts. Fred was more than a business leader. He was a visionary who revolutionized the delivery industry. He was a man who led with integrity and inspired others. His belief in people, his relentless pursuit of excellence, and his commitment to connect people and possibilities built one of the world's most successful companies over the last five decades, and his legacy will be felt for decades to come.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

On a personal note, I will miss his strategic counsel, impeccable character, and sharp wit. He taught me that leadership is about service and not titles. He challenged me to think bigger, act bolder, and always, always put our people and our customers at the center of everything we do. I feel tremendously fortunate to have spent thirty five thirty four years learning from one of the most brilliant minds in our country's history. Please join me in extending heartfelt condolences to the entire Smith family during this difficult time.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

As we move forward, we'll honor his legacy by continuing to build the company he loved with the same passion and purpose he inspired us inspired in us all. Now consistent with our succession plan, yesterday, the board elected Brad Martin as the chairman of the board of FedEx4. Brad is a highly regarded business leader and strategic thinker who is intimately familiar with the business, having previously served as our vice chairman. With that, I'm gonna turn the call over to Jenny.

Jenifer Hollander
Jenifer Hollander
VP - IR at FedEx

Thanks, Raj. Good afternoon, and welcome to FedEx Corporation's fourth quarter earnings conference call. The fourth quarter earnings release and stat book are on our website at investors.fedex.com. This call and the accompanying slides are being streamed from our website. During our Q and A session, callers will be limited to one question to allow us to accommodate all those who would like to participate.

Jenifer Hollander
Jenifer Hollander
VP - IR at FedEx

Certain statements in this conference call may be considered forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Today's presentation also includes certain non GAAP financial measures. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non GAAP financial measures discussed on this call to the most directly comparable GAAP measures.

Jenifer Hollander
Jenifer Hollander
VP - IR at FedEx

Joining us on the call today are Raj Subramaniam, President and CEO Bree Carreri, Executive Vice President and Chief Customer Officer and John Dietrich, Executive Vice President and CFO. And now I will turn the call back over to Raj.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Thank you, Jenny. I want to start by commending our team for their strong efforts and execution. We delivered a solid finish to FY 2025 with another quarter of adjusted operating income growth and adjusted operate operating margin expansion despite a challenging demand environment. This performance reflects the progress we have made on our strategic transformation, which continues to position FedEx for long term value creation. In FY '25, we delivered on our $2,200,000,000 DRIVE structural cost reduction commitment. This enabled us to achieve our two year $4,000,000,000 DRIVE target compared to the FY 2023 baseline. We advanced Network two point zero in FY 2025 as we began optimizing larger, more densely populated markets. We continued to lower our capital intensity, and we returned $4,300,000,000 in cash to stockholders.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

We achieved all of this in the face of major headwinds, including the expiration of our US Postal Service contract, two fewer operating days, and volatility and uncertainty related to global trade policy. Against this dynamic backdrop, I'm very proud of our ability to deliver on our targets, adapt our network to changing trade flows, and provide excellent service for our customers. Now turning to our consolidated q four results. Revenue was up 1% year over year. We grew our drive savings sequentially and achieved our drive cost reductions target in this quarter.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

This enabled us to grow adjusted operating income by 8% and expand adjusted operating margin by 60 basis points. At Federal Express Corporation, our results demonstrate the operational leverage that we have built into our business through Drive. On a 1% increase in revenue, we grew adjusted operating income by 9%. We achieved this result in a weak demand environment with growth largely drawn by our deferred services. Our performance demonstrates the flexibility of our network, and I'm confident in the operating results we can deliver when the industrial economy recovers.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Consistent with the trends over the last several quarters, our higher margin B2B volumes remain pressured, which affected both FEC and freight results. That said, we are encouraged by the sequential improvement of FedEx Freight and our ability to protect profitability with an operating margin of 20.8% in q four. The trade related events of the fourth quarter showcase our ability to leverage both the scale and the flexibility of our unrivaled global network, supported by insights from the vast amounts of data we collect. We are at the center of a global trade ecosystem. We connect 99% of the world's e world's commerce.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

We move $2,000,000,000,000 worth of goods every year. We connect 3,000,000 shippers to more than 225,000,000 consumers. And as the world changes and supply chains evolve, we benefit from our presence in over 220 countries and territories. This uniquely positions us to be a valuable partner to our customers as they navigate shifting demand trends, evaluate the impact of tariffs on their businesses, and adjust their supply chains accordingly. And importantly, our Tricolor strategy enables us to adapt our own network faster than ever before as circumstances and the needs of our customers change, driving greater efficiency and a better customer experience.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

For example, in the fourth quarter, we flexed our network to match the demand environment as trade flows shifted. We reduced capacity on our Asia to America's lane by more than 35% the May compared to April. This included reduce reducing our third party or white tail capacity by 50%. We then continue to adjust the capacity as needed. As demand trends evolve throughout the month, we exited May with a net capacity reduction of about 20% versus April.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

We have been introducing other network changes in Asia, allowing us to consolidate from multiple points into a centralized gateway. We recently added a direct flight from Singapore to The US, enabling us to be to more efficiently capture increased demand out of Southeast Asia. We continue to evaluate trade patterns and are prepared to alter our routes and capacity commitments should demand shift with a focus on Asia to Europe and Asia to Latin America. In addition to rapidly adjusting our physical network, our team has done a remarkable job working closely with our customers and help helping them navigate increasing operational complexities. We continue to apply our digital platform based solutions to effectively address key pain points amid changing global trade policies.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

These solutions support a wide range of stakeholders, importers, exporters, brokers, and regulators, and they are tightly integrated with our customers' existing workflows, ensuring that critical trade and tariff related work can occur seamlessly and efficiently. As you are all aware, there's a lot happening outside of FedEx. Trade policies are evolving and trade patterns are changing. What's truly remarkable is a significant way we have leveraged our technological capabilities and processes to navigate these complexities and operate more efficiently for our customers. Network two point zero is the next leg of our structural transformation, and it well underway.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

In April, we completed the full optimization of Canada, our largest market yet. As planned, we optimized 45 US stations in q four, and we are now picking up the pace. On June 1, we implemented Network two point zero on nearly 30 stations across 11 markets, and we will optimize another 33 stations across nine markets by the end of this month. That means we exit June with roughly 2,500,000 average daily volume flowing through network2.0 optimized stations. Looking beyond North America, we have made progress in Europe, including our drive target.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

That said, Europe remains a significant opportunity for long term financial improvement. We have been implementing the workforce reduction plan we announced in June of twenty twenty four. This was a very difficult but necessary decision for us, leading to about $150,000,000 of savings on an annualized basis in f y twenty seven. We have achieved better on road productivity with sustained improvement in net service levels. We have now seen two consecutive years of cost per package reduction in our European business. In FY twenty six, we'll focus on further improving on road and in station productivity, bringing new digital experience to our customers and growing market share profitably in the region.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

A quick update on the freight spin off. Last month, we named Brad Martin as chairman of the board of FedEx Freight. We also named John Smith as president and CEO of the stand alone company. As many of you know, John has deep freight expertise and a strong track record of improving margins and profitability at both FedEx Freight and FedEx Ground. We're moving quickly to announce the rest of our freight leadership team.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

We recently hired Michael Rogers as chief technology officer for FedEx Freight. Mike brings vast external technology experience, having most recently spent time in the fuel supply and the retail sectors. Additionally, Eddie Clank will serve as a FedEx Freight's chief human resources and legal officer. Eddie brings deep expertise from his nearly thirty year career at FedEx, most recently as corporate vice president for corporate governance, securities, and tax law. Mike Lyons has worked at FedEx Freight since 02/2007, will serve as a chief specialized services and commercial officer.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And Clint McCoy, who has worked at FedEx Freight for nearly thirty years, will be the chief operating officer. I'm confident that this mix of strong external FedEx cooperation and FedEx Freight talent will set up FedEx Freight FedEx Freight for success. Before I wrap up, I want to provide early perspective on how we are thinking about the current quarter and the year ahead. The global demand environment remains volatile. We're we're staying close to our customers to help them plan and adapt as they navigate trade policy changes, and we are actively match matching our capacity with demand as the environment evolves.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

John will walk through our expectations for the first quarter of this fiscal year. We remain focused on what we can control. For f y twenty six, we expect to achieve $1,000,000,000 of transformation related savings, which includes drive and network two point o. I again want to thank the team for the innovative and mission critical work they're doing to make supply chains smarter for everyone. This work has resulted in a solid finish to the fiscal year.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And importantly, it's translating to better outcomes for our customers in a very complex operating environment. Now let me turn the call over to Bree.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Thank you, Raj. I am proud of how we are helping our customers navigate this challenging period, and I think it's fitting to share that so too is our founder. Just this past Friday, Fred told me how fun it was to watch the team work, and then he saw and felt the momentum building in the business. He was excited about our ecommerce value proposition, the power of our clearance capabilities, and, of course, the growth in global airfreight and health care. I want to commend the entire organization for our focus on creating vast differentiation and showing up for our customers.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Delivering the Purple Promise has served us well for the last fifty years, the last quarter, and undoubtedly, it will serve us well in fiscal year Taking a closer look at our Q4 revenue performance. Consolidated revenue was up 1% with a 1% increase at Federal Express and a continued weakness as expected at FedEx Freight. For both segments, a better than expected May more than offset a softer than expected April. Looking at our volume trends by service, U. S.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Domestic volumes held up well throughout the quarter with growth accelerating in late April and May. Our nationwide coverage and our speed advantage are helping us win new profitable business. We saw 6% volume growth across our U. S. Domestic parcel services.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

From an international perspective, our volume trends closely tracked global trade headlines. March performance was solid and in line with our expectations. Following the April 2 tariff announcement, customer concerns increased and as a result volume softened. In early May, upon tariff implementation, China to U. S.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Volumes deteriorated sharply and remained weak throughout the rest of the quarter. Our international export revenue was flat, reflecting the tariff related impact on our Transpacific trade lane. I do want to take a moment to commend our clearance team at the Memphis Hub for their success in navigating this environment and maintaining excellent service. This was an impressive feat given customs entries in May were double the January through April average. Within our Freight segment, shipments remained pressured, but the year over year declines moderated sequentially with average daily shipments down 1% year over year in Q4 compared to down 5% in Q3 and down 8% in Q2.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

In fact, average daily shipments up 8.3% sequentially was our greatest Q4 over Q3 increase since fiscal year twenty twenty one. As we prepare for the freight spin off, we are continuing to execute on our commercial strategy with an emphasis on improved service and pricing discipline, and we continue to build out our dedicated sales force. The pricing environment continues to improve. At Federal Express, total U. S.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Domestic package yield was up slightly with strength in our priority services offset by mix shift and softer yields in deferred and ground economy. Maintaining pricing discipline remains a top priority. International export package yield declined 1%, driven by lower international economy yield, partially offset by an 11% yield increase for international priority. Within global air freight, we are pleased to see higher revenue per pound. This is a direct result of our Tricolor strategy, which is designed to increase network flexibility, reduce costs, and importantly support profitable growth in the international export freight market.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Thanks to Tricolor, we delivered 5% growth in international airfreight revenue in Q4 with a high profit flow through. At FedEx Freight, I remain encouraged by the continued increase in revenue per hundredweight, up 1%, signaling a continued commitment to revenue quality. Total revenue per shipment declined 1% due to lower fuel surcharge and lower weight per shipment. Looking ahead, as global trade policies continue to evolve and companies adjust their shipping patterns, we are well positioned to support our customers and adapt as needed. Our current expectation is for flat to two percent revenue growth in the first quarter.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

This range includes approximately $570,000,000 of idiosyncratic revenue headwinds from the expiration of the U. S. Postal Service contract and recent trade disruption. Where we land in the range largely depends on how The U. S.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Domestic revenue at FEC evolves. The top end of the range assumes current favorable U. S. Domestic trends at FEC continue through Q1. The lower end of our range assumes incremental pressure to U.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

S. Domestic demand. Internationally, we expect revenue from the China to U. S. Lane to remain pressured, consistent with what we saw exiting Q4.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

At Freight, we forecast revenue to decline slightly year over year in the first quarter. Now a quick update on our commercial strategy. Our focus is paying off, translating to better customer experiences and financial outcomes. Our emphasis on B2B, small and medium sized businesses, Europe and air freight is a deliberate approach to capitalize on high margin market opportunities while diversifying our revenue streams globally. Within B2B, healthcare and automotive remain important verticals for us.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

We exited FY twenty twenty five with $9,000,000,000 in healthcare related revenue, which drove growth in our U. S. Priority volumes. In Q4, we became the first global integrator to achieve an important pharma related certification known as SEAVE. This is for grand ground handling across our express hubs and ramps.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

This marks a significant milestone in our commitment to quality, compliance, and leadership in pharmaceutical logistics. It validates the strength of FedEx's quality management system and our ability to deliver end to end logistics services in compliance with an increasingly complex and highly regulated pharmaceutical industry. As we look to further penetrate the high margin health care segment, I am confident this achievement will unlock even more opportunity for us. Within automotive, we recently created a distinct vertical with its own dedicated leadership team, and we are off to a strong start. We were recently awarded GM Supplier of the Year Award for the twenty first year in a row.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Our focus for fiscal year twenty six will be growing within the $18,000,000,000 high margin segment of the North American automotive market, a subsector focused on premium services that supports automotive supply chain. Additionally, small and medium customers remain central to our commercial strategy. FedEx Rewards, our loyalty program, is unique in the industry and has become an important gateway for small and medium sized business businesses. I'm especially pleased with our revenue growth in The US as the rewards program enrollment increased 8% year over year. The rewards program creates a more seamless, personalized customer experience that drives customer loyalty.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

I want to again thank our team for continuing to execute on our commercial strategies. Their efforts are improving the customer experience, helping our customers navigate this period of volatility and positioning us well for sustainable growth that flows through to the bottom line. And with that, I'll turn it over to John.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Thank you, Brie, and hello, everyone. First, I'd like to share that the culture and extraordinary business that Fred Smith created unconditionally drew me to FedEx. I always greatly respected Fred for my earliest encounters with him in the industry, and I'm grateful and beyond privileged to have worked directly with him these past two years. Now turning to the quarter. I'm very pleased with what we achieved in Q4.

John Dietrich
John Dietrich
EVP & CFO at FedEx

This includes the actions we've taken to increase stockholder value, our discipline on CapEx and the transformation we advanced all while navigating a very complex environment. Our Q4 results reflect our ability to flex our network, onboard new revenue and manage costs. On a consolidated basis, we delivered $18.19 in adjusted earnings per share for FY 2025, achieving two consecutive years of earnings growth despite the prolonged freight industry softness, two fewer operating days, the expiration of the U. S. Postal Service contract and extraordinary weather events.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Federal Express also posted higher FY 2025 results year over year despite significant headwinds with adjusted operating income of $151,000,000 and $641,000,000 in revenue growth. This strong flow through to the bottom line demonstrates the powerful leverage inherent in our business, a reality that will become even more apparent when we see a recovery in the industrial economy. While consolidated adjusted operating income declined $121,000,000 This was due to FedEx Freight results, which continue to be challenged due to the prolonged weakness in the industrial economy. Taking a closer look at consolidated Q4 performance on a year over year basis, we delivered an 8% increase in adjusted operating income on a 1% increase in revenue. These results reflect our ability to grow revenue profitably as well as our ongoing commitment to managing our cost structure.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Our revenue performance includes recent healthcare wins, which are part of our strategy to profitably grow in B2B. Adjusted operating income increased by $147,000,000 and adjusted operating margin expanded by 60 basis points. We achieved this result despite a $165,000,000 headwind from one fewer operating day, dollars 120,000,000 headwind from the U. S. Postal Service contract expiration and pressures from the global trade policy changes.

John Dietrich
John Dietrich
EVP & CFO at FedEx

At FEC, adjusted operating income increased by $136,000,000 and adjusted operating margin expanded 70 basis points. This was driven by continued DRIVE savings, increased U. S. And international export volume and base yield growth. These drivers were partially offset by operating expense inflation and the headwinds I mentioned earlier.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Regarding our Asia international export exposure, the bilateral China to U. S. Lane represents around 2.5% of consolidated revenue and is our most profitable intercontinental lane. Due to escalating trade barriers in the quarter, we experienced a material headwind on our Asia to U. S.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Lane largely driven by China. Notably, this was not fully factored into our prior March outlook as certain tariffs were not yet announced and implemented until after our last earnings release. At Freight operating income fell by $30,000,000 and operating margin declined 40 basis points. Freight's operating income also reflects a $33,000,000 gain on sale of a legacy facility. As anticipated, our freight performance improved sequentially and our team maintained pricing discipline as base yields continue to be a tailwind to the quarter and the fiscal year.

John Dietrich
John Dietrich
EVP & CFO at FedEx

In addition to our segment results, our fourth quarter results include a non cash impairment charge of $21,000,000 related to our decision to permanently retire an additional 12 aircraft including seven A300s, three MD11s and two 757s as well as eight related engines. Over the last three years, we've removed a net 31 jet aircraft from our fleet, which is a 7% reduction versus FY 2022. These actions are aligned with the company's fleet reduction and modernization strategy as we continue to improve global network efficiency and better align air network capacity with anticipated demand. Now moving on to capital allocation. I'm extremely pleased that we both significantly reduced our capital intensity and returned $4,300,000,000 to stockholders in FY 2025.

John Dietrich
John Dietrich
EVP & CFO at FedEx

This was well above our previous $3,800,000,000 commitment. During the fourth quarter, we opportunistically purchased an additional $500,000,000 in shares bringing our total to $3,000,000,000 in share repurchases for the year. And we remain committed to returning capital to stockholders. We increased our dividend by 5% in FY 2026 making this the fifth consecutive year with a dividend increase. We will also continue to repurchase shares expect the combination of our fiscal twenty twenty six share repurchases and dividend payments to approximate adjusted free cash flow.

John Dietrich
John Dietrich
EVP & CFO at FedEx

We also significantly reduced our CapEx spending in FY 2025 by approximately $1,100,000,000 for a total of $4,100,000,000 compared to $5,200,000,000 in FY 2024. This marks our lowest capital spending in over ten years. Additionally, our CapEx as a percentage of revenue was 4.6%, the lowest level since FedEx Corp. Was established in fiscal year 'ninety eight. We're currently planning for FY 'twenty six CapEx to be approximately 4,500,000,000.0 of which $700,000,000 relates to Network two point zero investment.

John Dietrich
John Dietrich
EVP & CFO at FedEx

And we plan to further reduce aircraft CapEx to approximately $1,000,000,000 this fiscal year, a level we plan to maintain for the next several years. I'm also very proud that our adjusted free cash flow conversion from net income was extremely strong at nearly 90%, representing a step change versus prior years driven by our lower capital intensity. On this point, approximately 85% of our FY 2025 CapEx was related to modernization of our aircraft and vehicle fleets as well as optimization and automation of our network. We continue to prioritize investments that support increasing efficiency and reducing our cost to serve as opposed to capacity expansion. This capital spending approach signals an inflection in the life of our business as we can now further reap the benefits of our global network and seek to increase stockholder returns and improve ROIC in the years ahead.

John Dietrich
John Dietrich
EVP & CFO at FedEx

And we're translating our adjusted free cash flow at parity into stockholder returns. With respect to pension contributions, in FY 2026, we're planning for up to $600,000,000 of voluntary pension contributions to our U. S. Qualified plans, which are 103% funded as of the end of FY 2025. And finally, we have $1,300,000,000 of debt maturing in FY 2026 which we expect to pay off or refinance.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Now, I'd like to walk you through our expectations for Q1. As we've talked about, the macroeconomic environment remains uncertain. Our outlook is therefore based on current tariff rates, recent trends we're seeing as well as that which we're hearing from our customers. As Brie shared, we're currently planning for consolidated Q1 revenue to be in the range of flat to up 2%, including $170,000,000 adjusted operating income headwind from international export due to global trade policy impacts. This translates to a Q1 adjusted EPS range of $3.4 to $4 which includes approximately $200,000,000 in transformation benefits.

John Dietrich
John Dietrich
EVP & CFO at FedEx

We also anticipate our quarterly effective tax rate to be approximately 25%. At $3.7 of adjusted EPS, the midpoint of our range, we anticipate a 1% increase in Federal Express revenue with adjusted operating margin up modestly. Also at the midpoint, we anticipate FedEx Freight revenue to be down slightly with a modest decline in operating margin. Now turning to our FY twenty twenty six Q1 operating income bridge, which shows the year over year elements embedded in our outlook. This bridge reflects adjusted operating income of $1,250,000,000 which is equivalent to $3.7 of adjusted EPS.

John Dietrich
John Dietrich
EVP & CFO at FedEx

For revenue net of costs, we expect $130,000,000 tailwind reflecting our assumptions of operating expense inflation and revenue growth mostly U. S. Domestic. We're forecasting $170,000,000 in headwinds from international export as I mentioned, driven by the global trade policy impacts, primarily on our Transpacific lane. Lastly, we anticipate 120,000,000 in headwinds from the expiration of the U.

John Dietrich
John Dietrich
EVP & CFO at FedEx

S. Postal Service contract. Partially offsetting these headwinds is $200,000,000 of benefit from our transformation initiatives. Now turning to some important considerations for FY 2026. We expect around $1,000,000,000 in incremental year over year benefit from our transformation related efforts, which includes structural cost reduction benefits from Drive and Network two point zero.

John Dietrich
John Dietrich
EVP & CFO at FedEx

We anticipate a moderate ramp of these savings throughout the fiscal year. In addition, U. S. Postal Service contract expiration will be a near term headwind. For modeling purposes, I want to note that this significant revenue and operating income headwind is limited to the first four months of FY twenty six and likely to skew typical seasonality.

John Dietrich
John Dietrich
EVP & CFO at FedEx

As a reminder, small upticks in B2B revenues can result in significant incremental flow through. So if we see a recovery in the industrial economy, we're well positioned to see strong leverage to operating income. In addition to our Q1 outlook, we remain committed to being transparent and resuming our full year outlook for adjusted EPS, effective tax rate and capital returns as visibility improves. Now that we're into a new fiscal year, we're very excited about the significant value creation opportunities ahead for both FedEx Corporation and the future standalone FedEx Freight Company. In that regard, we plan to host a FedEx Corporation Investor Day in Memphis in early calendar twenty twenty six, where we'll share more details on our long term strategy.

John Dietrich
John Dietrich
EVP & CFO at FedEx

This will include a detailed update on our strategic initiatives such as Network two point zero, which represents a $2,000,000,000 savings opportunity from our physical network integration and associated OneFedEx savings by the end of fiscal twenty twenty seven. Additionally, we'll continue to progress our freight separation plans and expect to spin off freight in June of twenty twenty six. We also look forward to hosting a FedEx Freight Investor Day next spring prior to the spin off. In closing, while FY 2026 presents unique challenges and uncertainties, what remains unchanged is our commitment to driving stockholder returns and building a more profitable FedEx. Our transformation initiatives, capacity reductions and successful commercial strategies are helping us navigate the current environment and position us extremely well for when demand recovers.

John Dietrich
John Dietrich
EVP & CFO at FedEx

I'm confident in the value creation opportunity that remains in front of us. And with that operator, let's please open it up for questions.

Operator

We will now begin the question and answer session. The first question is from Daniel Imbro with Stephens. Please go ahead.

Daniel Imbro
Managing Director at Stephens Inc

Yes. Hey, good evening everybody. Thanks for taking our questions. Raj, I guess I want to start on the network two point zero savings and maybe John you can help chime in here too. But Raj, you mentioned ramping the pace of them through the fourth quarter and kind of into the first quarter. I guess I think John said $200,000,000 of drive in Network two point zero in the first quarter. But can you talk about the shape of how you see that $1,000,000,000 developing through this year just given the pace of the rollout? And then John, just digging into that $200,000,000 it looks like you got almost $700,000,000 of Drive savings in the fourth quarter.

Daniel Imbro
Managing Director at Stephens Inc

I think if you just flat line that it should be a few 100,000,000 of benefit in the first quarter. So are there any offsets as to why those DRIVE savings aren't larger in the first half of the year? That'd be great. Thanks.

John Dietrich
John Dietrich
EVP & CFO at FedEx

So, thank you Daniel. I'll take that. And with regard I'll start kind of in reverse order make sure I capture all your questions. Yeah, with regard to the $1,000,000,000 we're anticipating $200,000,000 of that in the first quarter as we stated. And as I said in my remarks, we see a ramping up of that through the year and that will include not only DRIVE but Network two point zero savings.

John Dietrich
John Dietrich
EVP & CFO at FedEx

And we've been clear that with regard to financial returns on Network two point zero, we're really not going to see a material impact of that until end of fiscal year twenty twenty seven. So, with regard to your comment on the q four results, you're right. We achieved our north of $600,000,000 I think it was $650,000,000 roughly of of drive benefit, which we committed to at the beginning of the year. We ramped up sequentially through the year and achieved our $4,000,000,000 for the two years and our 2,200,000,000.0 for FY '25. So drive is gonna be something we're gonna continue to focus on.

John Dietrich
John Dietrich
EVP & CFO at FedEx

We're gonna continue to feed the pipeline. It runs across and it's part of our our culture here. It's a way of doing business for us. And the way I've described to some, it's it's really a journey, a destination. So we're gonna keep feeding it, but that's our current outlook.

Operator

The next question is from Brian Ossenbeck with JPMorgan. Please go ahead.

Brian Ossenbeck
Brian Ossenbeck
MD & Senior Analyst - Transportation at J.P. Morgan

Hey, good evening. Thanks for taking the questions. Bree, just wanted to talk about the competitive dynamic in pricing in your commentary. Maybe I in the past you said competition is is still pretty challenging and at times increasing, but it it sounded like the pricing environment is actually improving. So if you can give us a sense as to what changed, and then also how you're trying to balance, the extra capacity in that work with some of the improving utilization, with some of these pricing initiatives like fuel surcharges and other, over dimensional hard to handle that we're seeing at the market. Thank you.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Thanks, Brian. As I did mention in my prepared remarks, we do see improvement in the pricing environment, which is encouraging. I do wanna know that this is compounded with the our team's focus on revenue quality, and, you know, I could not be more proud of the team's execution. As you saw over the last quarter, they pulled multiple pricing levers. We continue to work on our large package strategy because we get a a higher price relative to market because this is a very differentiated capability.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

We've got great coverage in rural. We're continuing to look at opportunities to monetize that and get paid for the differentiated value. And then, of course, we did make a significant change in our fuel surcharge of 2%. So we are pleased with the market, but we're equally pleased with the team's ability to execute. I think a great proof point of this is in q four, when you look at at the domestic yield for the quarter, you will see that the overall domestic parcel yield is still pressured.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

But what you can't see is that for home delivery and ground commercial, we had our best year over year yield improvement for those two really important products in Q4. So again, just a great proof point of how well the team is executing. Thanks for the question.

Operator

The next question is from Chris Wetherbee with Wells Fargo. Please go ahead.

Chris Wetherbee
Chris Wetherbee
Senior Analyst at Wells Fargo

Yes. Hey, thanks. Good evening, guys. Maybe I could ask about the guidance and thinking a little bit about what shows up in fiscal 1Q that may not as we go through the rest of the year. So the $120,000,000 from the post office, I think that's easy to understand.

Chris Wetherbee
Chris Wetherbee
Senior Analyst at Wells Fargo

The $170,000,000 on the international side, I guess, can you maybe help us understand break it down a little bit between maybe de minimis or what we're seeing and so China to The U. S. Or relative to maybe other countries to The U. S? And then how did that play out? What do we need to see to sort of change that dynamic into the next several quarters of the year? In other words, does it stick around for a while? Is there a certain event that you're looking for to give you some more comfort that that's maybe not going to be around for the rest of the year?

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

I think I'll take that one. So from a obviously, the trade environment is the primary reason that we are focused on q one versus a range for the entire year. We just simply cannot predict, how that's going to play out. We built the range, as John talked about, based on the current trade and tariff environment. What we do anticipate is that from a year over year perspective, we will have pressure in the Transpacific lane.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

And so when we talked about the headwind on tariffs, the vast majority of that is impact from China to The US. And within that, the vast majority is the impact of de minimis.

John Dietrich
John Dietrich
EVP & CFO at FedEx

I think what I'd add to that, Brie, is, you know, for other points in the globe outside of China, you know, there's still some trade negotiations going on there as well, which we don't yet know the outcome of. So I think add that additional color.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Yeah. And let me just say this much. I think, over the next thirty to sixty days, they're going the trade environment will change. And so we will see, you know, how that evolves, and it was very dynamic. And at that point, we'll be able to be, you know, more prescriptive. Thank you.

Operator

The next question is from Richa Harman with Deutsche Bank. Please go ahead.

Richa Harnain
Richa Harnain
Director - Lead Surface Transportation & Airfreight Equity Analyst at Deutsche Bank

Hey, everyone. Thanks for the question. So I know and I appreciate a lot of challenges and uncertainties out there as you all said hence no full year guide. But just as we think about cadence of the year in terms of some of the discrete tailwinds and headwinds related to cost savings and the like, perhaps you can help us a little bit more. So recently, Q1 has represented something like 20% of fiscal year EPS result.

Richa Harnain
Richa Harnain
Director - Lead Surface Transportation & Airfreight Equity Analyst at Deutsche Bank

John, you mentioned some of those things in the bridge like the USPS will be a headwind early part of the year that goes away and that will influence normal seasonality. So should we assume Q1 will have a lower weight than usual especially as these structural cost savings ramp up through the year?

John Dietrich
John Dietrich
EVP & CFO at FedEx

Yeah. Thanks, Richa. Yeah. I think that's a fair assumption there when you look at the particular headwind with regard to the postal service contract that we're going to lap in subsequent quarters. As you said, we're only providing first quarter outlook at this time, and that U.

John Dietrich
John Dietrich
EVP & CFO at FedEx

S. Postal Service headwind will be a factor. As a reminder, we'll lap that. And as we continue to build out on our expected $1,000,000,000 in transformation benefit throughout FY 2026, that could have an impact depending what happens on the revenue environment, particularly in U. S. Domestic.

Operator

The next question is from Jason Seidl with TD Cowen. Please go ahead.

Jason Seidl
Managing Director at TD Cowen

Thank you, operator, and condolences to the Smith family. Transportation sector definitely lost a giant. Wanted to just parse out between sort of B2B and consumer. It sounded like a lot of the pressure was on the B2B side still. Maybe you could talk a little bit about the consumer.

Jason Seidl
Managing Director at TD Cowen

And I think you mentioned May was better than expected. What were you guys seeing so far month to date in June?

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Hey, Jason. Thank you for your comments, and, we'll we'll pass on to the family. Brie?

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Thank you for the question. So from a b to b perspective, yes, you're absolutely right. We have not seen, a marked improvement in the industrial economy, and that's certainly pressuring both our FedEx Ground commercial, but also our base at Express and and certainly the the FedEx Freight division. So we have not seen improvement there. Obviously, when we see improvement, we're ready to capture that.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

From a consumer perspective, when we saw the May increase, obviously, spent a lot of time looking at the data. There is no one indication that we can point to that says that there was a consumer pull forward. What I can tell you is onboarding within our own pipeline was stronger in May, and that was the largest driver. Whether or not there is consumer pull forward is TBD, which is why we gave you the range that we did from a revenue perspective.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Let me just make one more point here. I think, on q four, we noticed that the operating leverage that we have, with the volume increases primarily driven by b two c. So, obviously, that's the hard work that we have done over the last three years. It gives us that operating leverage. And, you know, when the b to b starts to grow again, there's significant opportunity here.

Operator

The next question is from Jon Chappell with Evercore ISI. Please go ahead.

Jonathan Chappell
Senior Managing Director at Evercore ISI

Thank you. Good afternoon. And our condolences as well to the Smith family and the FedEx family. Struck me with Raj's comments about cutting Asia to U. S.

Jonathan Chappell
Senior Managing Director at Evercore ISI

Capacity by 35% in the May and exiting May down 20%. As we think about this tariff impact, how much of that 170,000,000 at least as it relates to the first quarter is strictly revenue? And how much of it is costs that could be fleeting, so to speak, around the flexibility of your network?

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

I'll say this much. I think the first of all, because of the implementation of Tricolor, our network has become incredibly more flexible. What we have accomplished in May would not have been possible without the implementation of of Tricolor. I will leave it to John to parse the revenue and the cost out of the question.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Yeah. Thanks, Raj. Know, I I think it's a fluid situation in that in areas where we may be contracting in terms of flights and so forth, we're redirecting that to where the demand is going to. So it's not a straight takeout of the cost, and we're gonna continue to adjust to the demand flows. So we're gonna be watching that closely.

John Dietrich
John Dietrich
EVP & CFO at FedEx

We're gonna be watching our our assets closely. So I think it's it's fair to say I'm not gonna parse out the the 170,000,000 in in, you know, top line and bottom line, but I will say we're watching it closely, and it's a it's a appropriate estimate of what we're seeing right now.

Operator

The next question is from Connor Cunningham with Melius Research. Please go ahead.

Conor Cunningham
Director – Travel & Transports Research at Melius Research LLC

Hi, everyone. Thank you. Just going back to to network22.o. You mentioned, I think, point 5,000,000 packages that are going through the new network now or by the June I should say. Can you just talk about the margin contribution of those?

Conor Cunningham
Director – Travel & Transports Research at Melius Research LLC

Are they coming in as you would expect? And you've downplayed the potential of those being more of an FY 2017. I'm just trying to understand why there is that lagging gap. Is there like a lag period between those needing to go up to where you would think from a margin contribution standpoint? Thank you.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Hi, Connor. Thank you for the question. So from a network2.o, I I cannot emphasize enough how pleased we are with Scott Ray and the execution that this team has demonstrated. When we looked at the original case from a p and d perspective, the majority of the savings are in the pickup and and delivery reduction, and we are hitting those targets. So we're very pleased with that.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

As we think about when we want the flow through or expect the flow through from network2.o, it is important that it is gonna follow. Because when we go into a market, we have cost to implement the change in service and to make sure that we've got the right contingency so we have no revenue breakage. So that's why you're seeing a lag. We are on track as we talked about for f y twenty seven and the 2,000,000,000. So we feel really good about this program.

Operator

The next question is from Jordan Alliger with Goldman Sachs. Please go ahead.

Jordan Alliger
Jordan Alliger
VP & Equity Research Analyst at Goldman Sachs

Yeah. Hi. And I just wanna offer my condolences to the Smith family as well. Truly visionary. So sort of a secular question.

Jordan Alliger
Jordan Alliger
VP & Equity Research Analyst at Goldman Sachs

If you give perhaps some of your perspective on the change in global trade patterns due to tariffs. I know it's early, but specifically for less than truckload and potential ramifications to domestic manufacturing. And then from more of a global perspective, indeed, do you expect to see, an emergence of a China plus one and even a plus two strategy from a logistics perspective? Thanks.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Thank you, Jordan. I appreciate your condolences as well. The patterns are changing as we speak. And, clearly, we are seeing, you know, growth from Southeast Asia, for example, Vietnam. We launched this direct flight or redirected this flight now going to Singapore directly to The United States, which is a significant value proposition improvement for that market.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

We're seeing you know, we're looking at Asia to Europe as an opportunity. I was in the Miami headquarters or Latin America. Inbound markets are growing. So and this pattern and markets like India are growing substantially as well. So the patterns are changing as we speak.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And but the good news for FedEx is that we have built out this global network. This is where we get to flex our scale of the network that we build out because we don't have to do much different because we are already there in these markets. We had to be careful making sure that, you know, that the capacity, is right in in in markets and but it's you know, we we can move faster than how manufacturing can move, and we get the feedback of what's happening on the ground from the bottom up. As you see, we are the referendum on global supply chains every single day. So this is something that that we are working with.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

The second part of it is the fact that over the last many, many years, for every country, to every other country, for every commodity, we have the data. And not only do we have the data, we have engineered it and created that digital twin. So then we are able to apply the most modern technology to be able to create a platform solutions for our customers in this very complex environment. And, so whether it's importers, whether it's exporters, whether it's brokers, whether it's regulators. So, you know, yes, complexity is increasing.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

The environment is changing, but here's where we get to flex our scale. Thank you.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

Raj, I don't have very much to add. I think you covered that comprehensively. I think post COVID, we already saw a focus on regionalizing supply chains. You know, I think there was that impetus to diversify, and I think that there's gonna be a continuation there too. I'm really pleased with the commercial team and their execution in developing market.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

You know, India comes to mind right now. We have a a relatively small revenue base, but they are really doing well from a profitable growth perspective. We can see the same thing. We've got great momentum from Asia into Latin America. So I think the team is actually executing really well.

Brie Carere
Brie Carere
EVP & Chief Customer Officer at FedEx

I think the other thing that's critically important is Jill and the team have put an an extraordinary extraordinary program in place that incents the Chinese sales team to notify their counterparts around the world. So to Raj's point, from a a bottoms up, when they make a sales call in China and they have a customer there that is diversifying, we know we are connected, and so we have the the right conversations with their counterpart in Mexico or Vietnam or Malaysia, wherever else they are moving or thinking about shifting their demand. So I think we are really well prepared for any change in the market.

Operator

The next question is from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors
Senior Equity Research Analyst at Susquehanna

Thanks for taking my question. John, when you walk through the cash flow, I know we'll see this when we get the 10 ks later, but how much CapEx is in the Freight segment for last year? And how is that anticipated to trend in the budget for this year and the $4,500,000,000 that you talked about?

John Dietrich
John Dietrich
EVP & CFO at FedEx

Yes, Bascome. I'm going to

John Dietrich
John Dietrich
EVP & CFO at FedEx

I may have to get back to you on that one. I don't have that numbers right at my fingertips. And if you just give me a minute, I'll come back to revisit that that answer.

Operator

The next question is from Scott Group with Wolfe Research. Please go ahead.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Before I do Scott, hey, I do have that number. It's $437,000,000 So apologize for that slight delay. Thank you. Hey, Scott.

Scott Group
MD & Senior Analyst at Wolfe Research

All right. Thanks. And I'll echo condolences as well to Fred's family and the FedEx team. John, I guess my questions are for you. Can you clarify how much of the $1,000,000,000 this year is Drive versus Network two point zero?

Scott Group
MD & Senior Analyst at Wolfe Research

And then I guess, I understand we don't have a full year guide, but what's your degree of confidence that we'll see full year earnings growth this year? I'm not asking for a range, but just directionally, do you think we're set up to grow earnings this year?

John Dietrich
John Dietrich
EVP & CFO at FedEx

So thanks, Scott. So on your first question of the billion, we're not really breaking out the how much of that is drive and network two point zero. I expect we're going to have puts and takes on both fronts. And what we are committed to is the billion dollars. And, you know, when when you look at our prior goals, we put it out there and we achieve them.

John Dietrich
John Dietrich
EVP & CFO at FedEx

So I'm looking forward to achieving this billion and, you know, as I said before, keeping to feed the pipeline. So, you know, with regard to our guidance, you know, I think it's dependent on on where the demand environment goes to. You know, we're gonna be focusing on those things within our control. We've got a handle on those things within our control. And depending on what happens in the macro environment will depend on where we fall within the range.

John Dietrich
John Dietrich
EVP & CFO at FedEx

So we put a range out there for a reason, and we believe if there are favorable factors, we're going to be on the top end of the range. And if we're under pressure, we'll be on the lower end of the range. So I think a good way to think about is that the, you know, zero flat revenue, we're at at, you know, the lower end of the range at the $3.40 at 1%. We'll be at the $3.70, and, you know, at the 2 percent, we'll be at about $4. So, obviously, we're gonna shoot for that $4 and then some.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And, Scott, let me just just talk a little bit more broadly. I think if you look back at the last three years, we have reduced our total cost in absolute terms by 4,000,000,000 plus dollars, and, this is in a period of inflation. That provides us a lot of leverage, and we can see the opportunities now. You know, in your own words, the jaws of the crocodile could potentially open.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

I think we have the even with b to c volume increasing, we are seeing now significant operating leverage. And at some point, the industrial economy will turn. So we have opportunities on both sides. On on one on the revenue side, you know, we'll have to deal with an uncertain and dynamic economy. But but then and then secondly, the operating leverage we created because our cost structure will help us going forward.

Operator

The next question is from Brandon Oglenski with Barclays. Please go ahead.

Brandon Oglenski
Brandon Oglenski
Director & Senior Equity Analyst at Barclays

Good afternoon, everyone, and thanks for taking the question. And obviously, America lost a great business visionary and patriot, over the weekend. So condolences to Fred's, family, friends, and colleagues. But, Raj, you know, I think over the years, what we've what we're gonna now is we would get Fred's, insight into global policies, especially on trade. We know over the years, he was a big proponent of free trade.

Brandon Oglenski
Brandon Oglenski
Director & Senior Equity Analyst at Barclays

I guess, can you give us some insight into his, you know, past guidance and maybe recent guidance on how to navigate higher US barriers that maybe are here to stay? And how do you navigate the FedEx network in that scenario? I really appreciate it.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Thank you, Brandon. We are all laughing here about, you know, how how in the world I'm gonna answer that question. But first of all, thank you for your condolences. Yes. Fred was absolutely sitting in this in this on the side of free trade, but as he constantly reminded me that we don't make policy, and we we get to, you know, implement the policy sometimes.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And that's what we're doing. And I think the point that I would make to you is it's very, very difficult to predict what is gonna happen over the next thirty to sixty days or even further, and it's a dynamic environment. So we just have to live with that. But what I would say is the point I stressed before. The scale of FedEx comes into play in these kind of situations, both on the physical side and the digital side.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

As the complexity and the friction increases and the trade flow patterns change, you know, we have the advantage from perspective that we have the scale to execute for our customers. So that's what we will focus on, and, I'll stay away from the prediction game right now.

Operator

And the final question today comes from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz
Senior Equity Research Analyst at UBS Securities LLC

Yeah. Good afternoon. And, yeah, look, my condolences as well. I I know it's, gotta be painful, the unexpected loss of your founder. So, you know, condolences also to the FedEx family.

Tom Wadewitz
Senior Equity Research Analyst at UBS Securities LLC

The the question I have, I I have a bit of difficulty kinda translating, I guess, the the information you give us on the network two point o in terms of, like, you know, is it just is it tracking? Or, you you know, I I think in terms of, you know, terminal closures maybe as being a better read as opposed to terminal conversions, just a better read on cost savings. So, I know you're gonna give us some updates in the future, but just any thoughts. Do you feel like you're, you know, kind of ahead of the game on how that's going and, or just how would you how would you think about it in terms of how it's progressing versus the program that you've had? You know, it kinda had the same targets out there for a while.

Tom Wadewitz
Senior Equity Research Analyst at UBS Securities LLC

And are there any components within that just like, you know, instead of terminals that are up and running on two point o, how many terminals have actually been, or stations have actually been shut down at this point? Thank you.

John Dietrich
John Dietrich
EVP & CFO at FedEx

Thanks. Thanks, Tom. It's John. I I think the best way to describe it is that we're on track. Look.

John Dietrich
John Dietrich
EVP & CFO at FedEx

This was a a long game exercise and and initiative. And one of the things that is paramount is that we, as Brie mentioned before, preserve our customer service and not only maintain but enhance our service. We're seeing good progress on both the reliability side as well as the financial side for those locations we have transitioned. We're seeing the 10% improvement on our PUD. So we're learning along the way too, and we're adapting along the way.

John Dietrich
John Dietrich
EVP & CFO at FedEx

So I think it's fair to say we're on track. We've we've put our our targets out there in terms of the $22,000,000,000 with Network two dot o and and as part of OneFedEx. I view those as as, you know, going hand in hand, and we look forward to updating you on. But I'd say it's on track.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Yeah. And, thank you, Tom. Again, I think, I would just say, first of all, I'm very pleased with how we're progressing here. As of at the end of f y twenty five, we have closed 100 stations and integrated 290 stations under the network two auto model.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And we expect to, by the end of this program, expect to remove roughly 30% of our our surface facilities. So I was just out there in in the West Coast, where we just implemented the Road to the Auto. I was just so delighted to see how well that they have done, the morale of the team, and how the team is working together. So, yes, this a journey for us, but I think so far so good, Tom. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Raj Subramaniam for any closing remarks.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

Well, in closing, I would like to extend a sincere thank you for the outpouring of support received as we mourn Fred's loss. The words of support, anecdotes, thoughts, and prayers that have poured in over the last seventy two hours are a testament to the life and legacy he leaves behind. I'll end with a story that embodies who Fred was as a person and what he stood for. As the family gathered over the weekend, his son, Cannon, noticed an engraving on the back of Fred's watch. The same watch he wore for many, many years as she as he shook thousands of hands from heads of state and business leaders to military veterans and countless FedEx team members.

Raj Subramaniam
Raj Subramaniam
President & CEO at FedEx

And engraved on the back of this well worn, unassuming timepiece is the phrase waste, not a moment. Let me say that again. Waste, not a moment. We will carry that sentiment with us as we honor Fred's memory and lead FedEx through the next chapter. Thank you very much.

Operator

The conference has now concluded. Thank you for attending today's You may now disconnect.

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