FedEx(US:FDX)2025-03-20 20:15PART I. FINANCIAL INFORMATION Financial Statements This section presents FedEx Corporation's unaudited condensed consolidated financial statements, detailing financial position, performance, and cash flows, and notes on strategic initiatives Q3 FY2025 Key Financials (Three Months Ended Feb 28, 2025) | Financial Metric | Amount (in millions) | YoY Change | | :--- | :--- | :--- | | Revenue | $22,160 | +2.0% | | Operating Income | $1,292 | +4.0% | | Net Income | $909 | +3.4% | | Diluted EPS | $3.76 | +7.1% | YTD FY2025 Key Financials (Nine Months Ended Feb 28, 2025) | Financial Metric | Amount (in millions) | YoY Change | | :--- | :--- | :--- | | Revenue | $65,706 | +0.2% | | Operating Income | $3,424 | -14.5% | | Net Income | $2,444 | -14.5% | | Diluted EPS | $9.99 | -11.7% | - Announced the planned spin-off of FedEx Freight, expected to be completed by June 2026, creating a new publicly traded company29108 - On June 1, 2024, FedEx Ground and FedEx Corporate Services were merged into Federal Express as part of the 'one FedEx' consolidation plan, making Federal Express and FedEx Freight the two reportable segments27107 - The Board of Directors approved changing the fiscal year-end from May 31 to December 31, effective June 1, 202632108 Condensed Consolidated Balance Sheets Total assets, liabilities, and common stockholders' investment decreased, primarily driven by reduced cash and treasury stock purchases Balance Sheet Summary (in millions) | Account | Feb 28, 2025 (Unaudited) | May 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $17,214 | $18,207 | | Net Property and Equipment | $40,964 | $41,491 | | Total Assets | $85,043 | $87,007 | | Total Current Liabilities | $13,896 | $13,355 | | Long-Term Debt, less current portion | $19,530 | $20,135 | | Total Liabilities | $58,335 | $59,425 | | Total Common Stockholders' Investment | $26,708 | $27,582 | Condensed Consolidated Statements of Income Q3 FY2025 saw revenue and net income growth, while nine-month results showed flat revenue and a decline in net income, impacted by rising optimization costs Income Statement Highlights (in millions) | Metric | Q3 2025 | Q3 2024 | 9M 2025 | 9M 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $22,160 | $21,738 | $65,706 | $65,584 | | Operating Income | $1,292 | $1,243 | $3,424 | $4,004 | | Net Income | $909 | $879 | $2,444 | $2,857 | | Diluted EPS | $3.76 | $3.51 | $9.99 | $11.31 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased due to working capital changes, while investing cash outflow reduced from lower capital expenditures, and financing cash outflow increased due to stock repurchases Cash Flow Summary (Nine Months Ended, in millions) | Activity | Feb 28, 2025 | Feb 29, 2024 | | :--- | :--- | :--- | | Cash from Operating Activities | $4,517 | $5,614 | | Cash used in Investing Activities | $(2,660) | $(3,966) | | Cash used in Financing Activities | $(3,172) | $(2,834) | | Net Decrease in Cash | $(1,366) | $(1,212) | Notes to Condensed Consolidated Financial Statements These notes detail significant accounting policies and events, including the 'one FedEx' consolidation, planned spin-off, fiscal year-end change, optimization costs, and recent acquisitions and share repurchases - Business optimization costs under the DRIVE program were $179 million for Q3 and $633 million for the nine months of FY2025, primarily for severance and professional services41 - In January 2025, the company commenced debt exchange offers for $16.2 billion of senior notes in connection with the planned FedEx Freight separation, successfully completing them in February 20257678 - Acquired RouteSmart Technologies, Inc. on February 4, 2025, for $113 million in FedEx common shares and cash79 - Repurchased 8.9 million shares for $2.5 billion during the nine months ended February 28, 2025, with $2.6 billion remaining available under the 2024 stock repurchase program as of that date62 Management's Discussion and Analysis (MD&A) Management discusses Q3 operating income growth driven by DRIVE savings and yields, offset by nine-month declines, while navigating macroeconomic pressures through cost reduction and cautious capital expenditure plans - Q3 operating income increased 4% to $1.29 billion, while nine-month operating income decreased 14% to $3.42 billion116117 - Positive impacts from DRIVE initiatives, increased base yields, and higher U.S. ground/international export package demand were partially offset by higher purchased transportation/wage rates, the expiration of the USPS contract, and increased business optimization costs117 - The company is experiencing pressure on demand, particularly for priority services, due to macroeconomic conditions like inflation, high interest rates, and uncertainty in international trade111112140 - FY2025 capital expenditures are projected to be approximately $4.9 billion, down from $5.2 billion in FY2024, reflecting reduced capital intensity141187 Results of Operations Q3 FY25 consolidated revenue and operating income increased, driven by Federal Express, despite a decline in FedEx Freight and rising purchased transportation and business optimization costs Segment Operating Income (in millions) | Segment | Q3 2025 | Q3 2024 | % Change | 9M 2025 | 9M 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Federal Express | $1,294 | $1,173 | 10% | $3,299 | $3,514 | (6%) | | FedEx Freight | $261 | $341 | (23%) | $1,012 | $1,314 | (23%) | | Corporate, other | $(263) | $(271) | 3% | $(887) | $(824) | (8%) | | Consolidated | $1,292 | $1,243 | 4% | $3,424 | $4,004 | (14%) | - Purchased transportation expense increased 5% in Q3 due to higher rates and increased use of commercial linehaul to support international economy volume growth129 - Fuel expense decreased 22% in Q3 due to lower fuel prices and usage130 Reportable Segments Analysis Federal Express operating income grew due to higher yields and volume, while FedEx Freight's declined due to lower shipments and surcharges, reflecting differing segment performance amid market conditions - Federal Express Q3 revenue increased 3% to $19.2 billion, with operating income up 10% to $1.3 billion and margin improving to 6.7%155161 - FedEx Freight Q3 revenue decreased 5% to $2.1 billion, with operating income down 23% to $261 million and margin contracting to 12.5%165168 - At Federal Express, a 48% YoY increase in International Economy average daily package volume was a key growth driver in Q3157160 - At FedEx Freight, average daily shipments decreased 5% in Q3, reflecting reduced demand from macroeconomic conditions165167 Financial Condition The company maintains strong liquidity despite decreased operating cash flow, driven by reduced capital expenditures and significant stock repurchases, with future capex projected at $4.9 billion Liquidity and Capital Summary (Nine Months Ended Feb 28, 2025) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents (end of period) | $5,135 | | Cash provided by operating activities | $4,517 | | Capital expenditures | $(2,582) | | Purchases of common stock | $(2,517) | - Capital expenditures decreased 35% in the first nine months of FY25, primarily due to lower spending on aircraft, facilities, and vehicles171175 - The company maintains investment-grade credit ratings from S&P (BBB, stable) and Moody's (Baa2, stable)194 Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk were reported, with primary exposures to foreign currency and fuel prices, the latter largely mitigated by surcharges - The company's primary market risks are foreign currency exchange rates and fuel prices205207 - Fuel price risk is largely mitigated through indexed fuel surcharges207 Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were deemed effective as of the end of the reporting period208 - No material changes were made to internal controls over financial reporting during the quarter209 PART II. OTHER INFORMATION Legal Proceedings The company is defending employment-related lawsuits and settled a negligence case, with no expected material adverse effect from ongoing legal proceedings - FedEx is defending lawsuits related to the employment status of drivers for its service providers95 - In February 2025, the company settled a negligence and wrongful death lawsuit related to a driver for an amount below the previously established immaterial accrual96 Risk Factors Key risk factors include uncertainties surrounding the planned FedEx Freight spin-off, potential dis-synergies, management distraction, and the increasing threat of sophisticated data breaches and technology disruptions - The planned spin-off of FedEx Freight faces risks including failure to complete, potential for unfavorable terms, significant costs, management distraction, and no guarantee of achieving intended strategic benefits212213 - The company faces increasing risk from sophisticated data breaches and cyberattacks that could disrupt operations, compromise sensitive information, and harm its reputation, with emerging technologies like AI potentially heightening these risks217225 Unregistered Sales of Equity Securities and Use of Proceeds FedEx issued unregistered shares for the RouteSmart Technologies acquisition and repurchased 1.8 million shares under its stock repurchase program during Q3 FY2025 - Issued 359,052 unregistered shares valued at ~$90 million for the acquisition of RouteSmart Technologies226 Q3 FY2025 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Dec. 1-31, 2024 | 540,000 | $276.78 | | Jan. 1-31, 2025 | 1,258,310 | $276.03 | | Feb. 1-28, 2025 | — | $— | | Total | 1,798,310 | N/A | Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, disability plans, and required certifications