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Raj Subramaniam had a message after FedEx posted its third-quarter results. Volume is fine, but volume is not the point anymore. FedEx is going after customers who need more than just boxes moved quickly, and the quarter’s numbers suggest the strategy is working.<\/p>\n
Revenue came in at $22.9 billion, up 12%, with adjusted earnings per share of $3.74, up 28%. Adjusted operating income grew 16%. The headline figures are strong. What management spent more time explaining was what drove them and what the company intends to keep doing.<\/p>\n
About 60% of FedEx revenue now comes from business-to-business customers, according to Chief Customer Officer Brie Carere. That share, alongside premium consumer shipping, is where the company is deliberately concentrating. Ground economy volume fell 4% in the quarter. Management was not apologetic about that number. Pulling back from low-margin commodity parcels is part of the plan.<\/p>\n
Why FedEx is walking away from high-volume, low-margin shipping<\/p>\n
AI data centers were the fastest-growing vertical in the quarter. Carere described the segment as leading FedEx’s growth, and Subramaniam pointed to a 15-fold increase in aircraft engine moves tied to that customer base. Data center buildouts need large, time-sensitive freight. It is not a commodity parcel business. The shipments are heavy, the timelines are tight, and the customers are not shopping around on price the way a typical e-commerce shipper would.<\/p>\n
Also read: Amazon CEO Andy Jassy makes a bold revenue prediction<\/p>\n
Healthcare grew at a double-digit rate. FedEx holds 30 IATA CEIV Pharma certifications, a compliance standard for pharmaceutical cold-chain logistics. Health system customers need temperature-controlled handling and regulatory documentation. Those certifications take time to earn and are not easy for a competitor to replicate quickly.<\/p>\n
FedEx added 13 major automotive customers in the quarter and the vertical grew at a high single-digit rate. Auto logistics does not work like e-commerce. When a missing part holds up a production line, the per-hour cost of that downtime typically runs well past what the freight invoice says. The accounts FedEx is winning in this space are not running competitive bids on shipping price.<\/p>\n
Subramaniam said FedEx is “deepening partnerships with customers who value speed, precision, and the capabilities we offer.” Carere put a number on the opportunity: the four key verticals FedEx is targeting represent a global market of more than $130 billion within a total addressable logistics market exceeding $600 billion.<\/p>\n
FedEx raised rates and its best customers are not pushing back<\/p>\n
The customer mix shift is showing up in yield. U.S. domestic package yield rose 7% in the quarter. International package yield rose 17%. Carere described the pricing environment as competitive but rational. A 5.9% general rate increase takes effect January 4, 2027. That is not the kind of pricing action a company takes when it is worried about losing volume.<\/p>\n
International was a standout this quarter. Operating income for the segment rose 52%. International freight revenue rose 28%. Those results reflect better customer selection, not just a surge in volume. Yield discipline is part of what is producing those numbers, and management reaffirmed a target of an 8% international operating margin by 2029.<\/p>\n
SMBs grew faster than large enterprise accounts in the quarter. Small and midsize companies generally do not run dedicated procurement teams focused on freight contracts, which makes rate negotiations less aggressive than what FedEx encounters with large shippers. The carrier gets more room on pricing per shipment. Whether that holds once peak volume starts building is a number worth checking in the next report.<\/p>\n
FedEx added 13 major automotive customers in the quarter and the vertical grew at a high single-digit rate.<\/p>\n
martinrlee \/ Getty Images<\/p>\n
The 475-location closure plan funding FedEx’s new direction<\/p>\n
None of this customer shift holds up without the operational work running underneath it. Network 2.0 is FedEx’s consolidation of its Express and Ground networks, and Subramaniam called it one of the most significant transformations in the company’s recent history.<\/p>\n
About 65% of eligible volume now runs through roughly 630 optimized stations. The closure count has already passed 260; the full plan calls for shuttering over 475 locations by the end of 2027. Savings are expected at around $1 billion this year. The $2 billion cumulative figure comes by 2027. Subramaniam, on the call, named the tools available to manage costs from here: overtime balancing, leaning on available capacity, and building cost assumptions into pricing before the invoice goes out.<\/p>\n
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Europe is a parallel project. FedEx is targeting $650 million in European operating profit improvement by 2029, shifting the regional mix away from low-margin domestic volumes and toward cross-border shipments. Subramaniam was specific that the 8% international margin target is a waypoint, not a ceiling. “The International margin of 8% in CY ’29 is only a waypoint,” he said on the call.<\/p>\n
What FedEx’s raised guidance signals about the plan ahead<\/p>\n
FedEx raised its full-year adjusted EPS guidance to a range of $18.00 to $18.60. Adjusted free cash flow is expected to land around $4 billion for the year, against a long-run target of $6 billion by 2029. The company has repurchased $2 billion in shares since June.<\/p>\n
Beyond this year, management is targeting annual revenue growth of about 4%, split between 2% volume growth and 2% yield improvement, excluding fuel. The top 30 customers drive about 35% of U.S. peak volume, which means a relatively small group of accounts has an outsized effect on the most important stretch of the calendar. That concentration is a variable investors will want to monitor heading into peak season.<\/p>\n
FedEx is not making a straightforward volume play. The company is building around customers that need precision logistics, specialized handling and supply chain integration. The Q3 results show that combination can produce meaningful margin expansion. Whether it holds through a softer freight environment, or through the long timeline to 2029, is the question the rest of the year will start to answer.<\/p>\n
Related: Verizon faces a concerning customer trend<\/p>\n
#FedEx #CEO #shift #customer #base<\/p>\n","protected":false},"excerpt":{"rendered":"
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