FedEx(FDX) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section details the company's financial statements, notes, and management's analysis of its performance and condition Financial Statements This section presents the unaudited condensed consolidated financial statements for the quarter ended November 30, 2024, along with notes on accounting policies and significant events Condensed Consolidated Balance Sheets The balance sheet highlights show changes in total assets, liabilities, and stockholders' investment between November 30, 2024, and May 31, 2024 Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Nov 30, 2024 (Unaudited) | May 31, 2024 | | :--- | :--- | :--- | | Total current assets | $17,721 | $18,207 | | Net property and equipment | $41,006 | $41,491 | | Total assets | $85,481 | $87,007 | | Total current liabilities | $14,392 | $13,355 | | Long-term debt, less current portion | $19,433 | $20,135 | | Total liabilities | $59,021 | $59,425 | | Total common stockholders' investment | $26,460 | $27,582 | Condensed Consolidated Statements of Income This statement summarizes the company's revenue, operating income, net income, and diluted EPS for the three and six months ended November 30, 2024, compared to the prior year Income Statement Summary (in millions, except per share data) | Metric | Three Months Ended Nov 30, 2024 | Three Months Ended Nov 30, 2023 | Six Months Ended Nov 30, 2024 | Six Months Ended Nov 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $21,967 | $22,165 | $43,546 | $43,846 | | Operating Income | $1,052 | $1,276 | $2,132 | $2,761 | | Net Income | $741 | $900 | $1,535 | $1,978 | | Diluted EPS | $3.03 | $3.55 | $6.24 | $7.79 | Condensed Consolidated Statements of Cash Flows This statement details cash flows from operating, investing, and financing activities, showing the net decrease in cash for the six months ended November 30, 2024 Cash Flow Summary (in millions) | Cash Flow Activity | Six Months Ended Nov 30, 2024 | Six Months Ended Nov 30, 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $2,505 | $4,004 | | Cash used in investing activities | ($1,606) | ($2,608) | | Cash used in financing activities | ($2,309) | ($1,518) | | Net decrease in cash | ($1,472) | ($127) | | Cash and cash equivalents at end of period | $5,029 | $6,729 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of significant accounting policies, business reorganizations, optimization costs, and share repurchase activities - As part of the 'one FedEx' consolidation plan, FedEx Ground and FedEx Services merged into Federal Express on June 1, 2024, creating a unified air-ground network, with Federal Express and FedEx Freight now being the two reportable segments[24] - On December 19, 2024, the Board of Directors decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company. The transaction is expected to be tax-free and executed within the next 18 months[26] - The company incurred business optimization costs of $326 million for the three months and $454 million for the six months ended November 30, 2024, primarily related to severance and professional services under the DRIVE program and a European workforce reduction plan[41] - During the six months ended November 30, 2024, the company repurchased 7.1 million shares for a total of $2.0 billion. As of November 30, 2024, $3.1 billion remained available for repurchases under the 2024 stock repurchase program[60] Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) Management discusses the challenging macroeconomic environment, leading to declining operating income, partially offset by cost savings, and outlines plans for FedEx Freight separation and capital expenditures Trends Affecting Our Business This section discusses how macroeconomic conditions, including weakened global industrial production, inflation, and lower fuel prices, are impacting the company's business volumes and yields - The business is vulnerable to macroeconomic conditions, with weakened global industrial production and a decline in U.S. consumer goods imports pressuring package and freight volumes[109] - Elevated global inflation and interest rates are negatively affecting consumer and business spending, putting pressure on demand for transportation services, particularly priority services[110] - Lower fuel prices during the second quarter and first half of 2025 negatively affected yields through lower fuel surcharges, although this also reduced fuel expense[111] Consolidated Results This section presents the consolidated operating results, highlighting declines in revenue, operating income, net income, and EPS, influenced by demand shifts and optimization costs Consolidated Operating Results (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $21,967 | $22,165 | (1%) | $43,546 | $43,846 | (1%) | | Operating Income | $1,052 | $1,276 | (18%) | $2,132 | $2,761 | (23%) | | Net Income | $741 | $900 | (18%) | $1,535 | $1,978 | (22%) | | Diluted EPS | $3.03 | $3.55 | (15%) | $6.24 | $7.79 | (20%) | - Operating income declined due to lower U.S. domestic demand, higher purchased transportation and wage rates, and increased business optimization costs. This was partly offset by strong international export demand, yield improvements, and DRIVE cost savings[117] - Business optimization costs under the DRIVE program totaled $326 million in Q2 2025 and $454 million in H1 2025, up from $145 million and $250 million in the respective prior-year periods[118] - The company repurchased $2.0 billion of common stock in the first half of 2025, which benefited diluted EPS by $0.10[119] Federal Express Segment This section details the Federal Express segment's operating results, noting stable revenue, increased Q2 operating income, and significant shifts in U.S. freight and international economy package volumes Federal Express Segment Operating Results (in millions) | Metric | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $18,841 | $18,773 | 0% | $37,146 | $37,199 | 0% | | Operating Income | $1,052 | $1,035 | 2% | $2,005 | $2,341 | (14%) | - U.S. average daily freight pounds decreased significantly (51% in Q2) primarily due to the expiration of the USPS contract on September 29, 2024[166] - International economy package volume grew strongly (44% in Q2) due to continued growth in deferred service offerings amid global macroeconomic conditions[166] - Operating income increased in Q2 due to higher base yields, but decreased in H1 due to increased operating expenses (wages, purchased transport) and one fewer operating day, partially offset by DRIVE initiatives[168] FedEx Freight Segment This section analyzes the FedEx Freight segment's operating results, showing decreased revenue and operating income due to lower shipments and yields amid reduced demand FedEx Freight Segment Operating Results (in millions) | Metric | Q2 2025 | Q2 2024 | % Change | H1 2025 | H1 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,177 | $2,452 | (11%) | $4,506 | $4,837 | (7%) | | Operating Income | $312 | $491 | (36%) | $751 | $973 | (23%) | | Operating Margin | 14.3% | 20.0% | (570 bps) | 16.7% | 20.1% | (340 bps) | - Revenue decreased due to lower shipments and yields, driven by reduced demand from macroeconomic conditions. Average daily shipments fell 8% in Q2 and 5% in H1[175][177] - Operating income declined significantly due to lower revenue, which was partially offset by reduced operating expenses from lower volumes and fuel prices[178] Financial Condition This section reviews the company's financial condition, including cash flow from operations, capital expenditure plans, liquidity, and ongoing share repurchase activities - Cash from operating activities decreased to $2.5 billion in H1 2025 from $4.0 billion in H1 2024, primarily due to working capital changes[181][184] - Capital expenditures are expected to be approximately $5.2 billion for fiscal 2025, in line with 2024, with a shift from aircraft spending to investments in network optimization and facility modernization[146][201] - The company held $5.0 billion in cash and cash equivalents at November 30, 2024, and had $3.5 billion in available liquidity under its credit agreements[198] - An additional $500 million of common stock is expected to be repurchased in the remainder of fiscal 2025, following the $2.0 billion repurchased in the first half[199] Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes in market risk exposures, identifying primary risks as foreign currency fluctuations and fuel price changes, largely mitigated by surcharges - There were no material changes in market risk sensitive instruments and positions as of November 30, 2024, compared to the disclosures in the Annual Report[217] - The principal foreign currency exchange rate risks relate to the euro, Chinese yuan, British pound, Canadian dollar, and other major currencies[218] - Market risk from changes in vehicle and jet fuel prices is largely mitigated by the company's indexed fuel surcharges[219] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of November 30, 2024, with no material changes to internal control over financial reporting during the quarter - Management evaluated disclosure controls and procedures and concluded they were effective as of November 30, 2024[221] - No changes in internal control over financial reporting occurred during the quarter that have materially affected or are reasonably likely to materially affect internal controls[222] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, and other corporate disclosures Legal Proceedings This section refers to Note 9 for material legal proceedings and clarifies that Federal Express assumed liability for all pending litigation from FedEx Ground and Services post-consolidation - For a description of material pending legal proceedings, refer to Note 9 of the condensed consolidated financial statements[223] - Effective June 1, 2024, Federal Express assumed liability for all pending litigation to which FedEx Ground and FedEx Services were previously party, due to the 'one FedEx' consolidation[223] Risk Factors This section highlights new material risk factors, primarily concerning the planned separation of FedEx Freight and the increasing threat of significant data breaches or technology disruptions - A new risk factor has been introduced regarding the planned separation of FedEx Freight. The separation is subject to conditions beyond the company's control and may not be completed on the contemplated terms or timeline, if at all[225] - Challenges related to the FedEx Freight separation include management distraction, significant costs, potential tax liabilities, and maintaining operational continuity[226] - A significant data breach or disruption to technology infrastructure is highlighted as a key risk. The company's ability to operate and compete depends on the security and reliability of its technology network, which is subject to increasing cyber threats[232] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, FedEx repurchased approximately 3.7 million shares for $1.0 billion, with $3.1 billion remaining available under the 2024 stock repurchase program Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Sep. 1-30, 2024 | 3,253,763 | $270.93 | | Oct. 1-31, 2024 | — | — | | Nov. 1-30, 2024 | 443,010 | $274.74 | | Total | 3,696,773 | N/A | - In Q2 2025, the company completed ASR transactions resulting in the delivery of 2.7 million shares and repurchased an additional 1.0 million shares in the open market[244] - As of December 19, 2024, approximately $3.1 billion remained available for repurchases under the 2024 stock repurchase program[245] Other Information This section reports no Rule 10b5-1 trading arrangement changes, an executive's extended retirement, and a minor payment to Iran's Intellectual Property Office under a U.S. government license - No director or officer of FedEx adopted, modified, or terminated any Rule 10b5-1 trading arrangement during the quarter ended November 30, 2024[247] - The retirement date for Mark R. Allen, Executive Vice President and Senior Advisor, was extended from December 31, 2024, to May 31, 2025[248] - Pursuant to an OFAC license, FedEx paid $160 to the Iran Intellectual Property Office (IIPO) for intellectual property protection efforts in Iran during the quarter[250] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, officer certifications, and interactive data files - The report includes key corporate documents, such as the Restated Certificate of Incorporation and Amended Bylaws, as exhibits[252] - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits[252]