FedEx expects tariffs to cut $1 billion out of its bottom line this fiscal year, with reduced China-to-U.S. demand already digging into first quarter profits.
The package delivery giant said it incurred $150 million in tariff headwinds in the quarter, with the company attributing reduced revenue to the end of the de minimis provision for Chinese imports.
“Given a significant portion of our de minimis volume exposure previously came from China, we were able to use learnings from our experiences in May to help shippers elsewhere navigate the more recent exemption elimination,” said FedEx CEO Raj Subramaniam in a Thursday earnings call.
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U.S. domestic package revenue increased 8 percent to $12.7 billion, buoying FedEx’s overall 3 percent revenue growth to $19.1 billion in the quarter. Net income increased 4 percent to $824 million as the firm slashed $200 million in costs via its ongoing network adjustment.
Domestic average daily volumes increased 5 percent to 13.9 million packages, while international export volumes declined to 3 percent to 1.1 million parcels per day, particularly on the China-to-U.S. lane. The China-to-U.S. route generates roughly 2.5 percent of consolidated revenue at FedEx and is the company’s most profitable intercontinental trade lane.
Based on customer feedback, FedEx chief customer officer Brie Carere said the courier was “cautiously optimistic” about peak holiday season growth.
FedEx expects “low-to-moderate growth” in peak season average daily volumes over the year prior, and a high-single-digit increase in year-over-year total peak volume due to the holiday season having one extra day.
“I anticipate that our numbers will be slightly elevated versus market,” said Carere. “From a performance perspective, we do see this driven by large B2C retailers and brands.”
Although the ocean freight industry saw what has been viewed as a “pull forward” of goods in June and July ahead of August’s U.S. trade negotiation deadlines, FedEx isn’t sensing this across its own business segments, according to Carere.
“The American consumer from our numbers has been resilient,” said Carere. “We do not see any indication in either air freight or domestic parcel business that this is pull forward. I will absolutely acknowledge July was quite strong for us, especially Prime Week. We saw a lot of U.S. retailers put sales in market, and they were effective. We saw strong volumes in July, but I don’t necessarily see that as a pull forward.”
But with the decline in demand out of China, the company is further adjusting capacity levels in the area.
“We reduced our purple tail trans-Pacific Asia outbound capacity by 25 percent year over year and nearly 10 percent versus the prior quarter,” said Subramaniam. “We also decreased our third-party or white tail capacity by similar percentages. At the same time, we shifted capacity to capture profitable revenue on the Asia-to-Europe lane.”
The call gave further color on some other initiatives FedEx has been putting in motion.
Carere said the company is ramping its new last-mile delivery partnership with Amazon, with the onboarding expected to be complete by the third quarter. Under that partnership, FedEx will deliver larger packages to Amazon’s residential customers. The Amazon business is expected to be profitable and support U.S. domestic revenue growth.
And Subramanian highlighted the continued progress of the Network 2.0 delivery network consolidation efforts, in which 360 facilities have been remodeled and another 140 were shut down. According to the CEO, FedEx exited the first quarter with 18 percent of its U.S. average daily volumes, running through the Network 2.0 model. Across both the U.S. and Canada, nearly 3 million parcels flow through these distribution centers.
With the earnings report, the Memphis, Tenn.-based company reintroduced its annual guidance for the 2026 fiscal year, expecting a 4 percent to 6 percent revenue growth rate year over year, alongside adjusted earnings from $17.20 to $19 per share.
The company confirmed the FedEx Freight spinoff “remains on track” to be completed by July 2026. The less-than-truckload (LTL) division saw weakness due to continued pressure on the industrial economy and excess capacity, with revenue declining 3 percent to $2.2 billion. Operating income contracted to 18 percent to $360 million.
Daily shipments declined 2 percent to 90 million. Revenue per shipment declined 1 percent, driven by lower revenue per hundredweight and lower fuel surcharges.
FedEx forecasts the division’s revenue to be flat-to-up modestly year over year, depending largely on the market conditions in the second half of the year.
The delivery firm expects to spend $600 million in spinning off FedEx Freight, namely to enhance IT infrastructure and systems.
Earlier this month, the company announced it would implement a 5.9 percent general rate increase effective Jan. 5, 2026 across FedEx parcel and FedEx Freight LTL.
