FedEx delivered a strong quarter on Tuesday, but shares of the delivery company are sliding in after-hours trading — which we see as a misreading of the results. Revenue in the fiscal fourth quarter of 2026 was $25 billion, above the $24.04 billion consensus forecast, according to estimates compiled by LSEG. Earnings per share (EPS) increased 4% to $6.31, beating expectations of $5.96, LSEG data showed. FDX 1Y mountain FedEx 1-year return Bottom line In its final quarter as the owner of the recently spun-off FedEx Freight, FedEx delivered exactly what investors want: beats on the top and bottom lines. So why all the after-hours selling? The likely culprits: Investors are dissatisfied with a margin miss and the forward earnings guidance for the rest of the year. Let’s start with the reported quarter’s operating margin of 8.35%, which was short of the 8.44% estimate. While this kind of miss can be disappointing, sellers may be overreacting in this case. Here’s why: FedEx is a transportation and logistics company that passes fuel costs on to customers via fuel surcharges, a dynamic that raises revenue and squeezes margins — but doesn’t affect earnings. When you pass fuel costs through, revenue rises (5 percentage points last quarter), but that incremental growth carries a 0% profit margin because the goal is to recover higher fuel expenses, not profit from them. As a result, overall margins compress even though earnings remain largely unaffected. Members who have followed our coverage of Linde may recognize a similar dynamic, as the company also utilizes contractual energy cost pass-through clauses. The most important takeaway from the conference call was that FedEx is seeing no drop in demand due to fuel surcharges. In fact, the operating margin would have increased year over year if not for the surcharge dynamic. As for the earnings guidance possibly disappointing some investors, it’s worth noting that CEO Raj Subramaniam has historically been conservative (underpromise, overdeliver) in setting estimates. That’s likely even more the case as the company is just getting started at improving operations post-spin of FedEx Freight. Moreover, the company announced a $1 billion stock buyback, which should support further earnings growth. Why we own it FedEx is transforming itself into a leaner, more profitable organization under the leadership of CEO Raj Subramaniam. By spinning off its freight unit, the remaining FedEx is focused on parcel and logistics services, while emphasizing higher-margin end markets. Competitors : UPS Last buy : May 18, 2026 Initiation date : May 18, 2026 Earnings growth will also come from operating initiatives. Management cited its recent formal launch of FedEx Life Science, which provides specialized transportation services for the health-care industry, where packages can be both time- and temperature-sensitive, as well as accelerating growth in artificial intelligence. “The AI and data center space is an emerging…
Read More: Why FedEx is down after a strong quarter — and its impact on our rating