FedEx (FDX)

Parcel and cargo delivery company FedEx (NYSE:FDX) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 3.1% year on year to $22.24 billion. Its non-GAAP profit of $3.83 per share was 5.8% above analysts’ consensus estimates.

Company Overview

Sporting one of the largest air cargo fleets in the world, FedEx (NYSE:FDX) is a global provider of parcel and cargo delivery services.

The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors offering similar products include UPS (NYSE:UPS), GXO (NYSE:GXO), and Amazon (NASDAQ:AMZN).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, FedEx’s 4.4% annualized revenue growth over the last five years was sluggish. This was below our standard for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. FedEx’s recent performance shows its demand has slowed as its revenue was flat over the last two years. We also note many other Air Freight and Logistics businesses have faced declining sales because of cyclical headwinds. While FedEx’s growth wasn’t the best, it did do better than its peers.

This quarter, FedEx reported modest year-on-year revenue growth of 3.1% but beat Wall Street’s estimates by 2.7%.

Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months, similar to its two-year rate. While this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

FedEx’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 27.1% gross margin over the last five years. Said differently, FedEx had to pay a chunky $72.94 to its suppliers for every $100 in revenue.

In Q3, FedEx produced a 29.8% gross profit margin, marking a 4.3 percentage point increase from 25.5% in the same quarter last year. FedEx’s full-year margin has also been trending up over the past 12 months, increasing by 1.3 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

FedEx’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 6.1% over the last five years. This profitability was paltry for an industrials business and caused by its suboptimal cost structureand low gross margin.

Analyzing the trend in its profitability, FedEx’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. FedEx’s performance was poor, but we noticed this is a broad theme as many similar Air Freight and Logistics companies saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction.

In Q3, FedEx generated an operating margin profit margin of 5.3%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

FedEx’s EPS grew at a solid 10.3% compounded annual growth rate over the last five years, higher than its 4.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into FedEx’s earnings to better understand the drivers of its performance. A five-year view shows that FedEx has repurchased its stock, shrinking its share count by 9.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For FedEx, its two-year annual EPS growth of 7.1% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, FedEx reported adjusted EPS of $3.83, up from $3.60 in the same quarter last year. This print beat analysts’ estimates by 5.8%. Over the next 12 months, Wall Street expects FedEx’s full-year EPS of $18.46 to grow 1.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

FedEx has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.5%, lousy for an industrials business.

FedEx’s free cash flow clocked in at $1.09 billion in Q3, equivalent to a 4.9% margin. This result was good as its margin was 4.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

FedEx historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, FedEx’s ROIC averaged 4.2 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

FedEx reported $6.17 billion of cash and $37.91 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $10.38 billion of EBITDA over the last 12 months, we view FedEx’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $461 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing FedEx beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance fell slightly short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 5.3% to $238.95 immediately following the results.

Updated: December 4, 2025 at 10:32 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in FedEx.

We see the value of companies helping their customers, but in the case of FedEx, we’re out. First off, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its solid EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its diminishing returns show management's prior bets haven't worked out.

FedEx’s P/E ratio based on the next 12 months is 14.4x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $274.29 on the company (compared to the current share price of $274.24).