By Panos Mourdoukoutas

FedEx reported another quarter of lackluster sales, as volume from China to the United States fell sharply after President Donald Trump announced reciprocal tariffs on April 2, and remained weak throughout the fourth quarter of fiscal 2025.

After the market closed on June 24, the Memphis, Tennessee-based provider of transportation, e-commerce, and business services in the United States and internationally reported revenue of $22.2 billion for the fourth quarter, which ended May 31, roughly unchanged from a year ago.

Diluted earnings per share were $6.88, and adjusted diluted earnings per share were $6.07, up from $5.94 and $5.41, respectively, a year earlier.

However, the company lowered its earnings guidance for the first quarter of fiscal 2026 to a range of $3.40–4.00, down from the previously forecasted $4.03, after excluding costs related to business optimization initiatives and the planned spin-off of FedEx Freight.

FedEx chief financial officer John Dietrich said during the earnings call that the company’s outlook was primarily based on the current tariff rates. He noted that the tariffs could reduce international export revenue—mainly from China—by $170 million in the first quarter of fiscal 2026.

Dietrich said that shipments from China to the United States account for approximately 2.5 percent of the company’s consolidated revenue and represent its most profitable intercontinental business.

“Due to escalating trade barriers in the quarter, we experienced a material headwind on our Asia to U. S. lane, largely driven by China,” he said.

Chief customer officer Brie Carere said domestic shipping volumes remained strong throughout the quarter, with growth accelerating in late April and May. However, shipments from China “deteriorated sharply” after Trump announced reciprocal tariffs on April 2 and remained weak for the rest of the fiscal fourth quarter.

“What we do anticipate is that from a year-over-year perspective, we will have pressure in the Transpacific lane,” Carere said.

“When we talked about the headwind on tariffs, the vast majority of that is [the] impact from China on the US. And within that, the vast majority is the impact of de minimis.”

Trump signed an executive order in April ending the de minimis exemption for goods imported from China and Hong Kong valued at $800 or less. The measure went into effect on May 2.

In the fiscal fourth quarter, the company adjusted its network to align with shifting demand, reducing capacity on its Asia-to-America lane by more than 35 percent in May compared to April.

“Looking ahead, I’m confident that our transformation initiatives, which are focused on integrating our networks and further reducing our cost-to-serve, will create meaningful long-term value,” Subramaniam said.

FedEx’s shares fell by 3.28 percent at market close on June 25. Over the past five years, the stock has gained 63 percent, lagging the S&P 500 Index, which has gained 97.56 percent.

Beyond the tariff impact, the company’s problems are chronic and far broader than those described by management.

Over the past couple of decades, FedEx’s businesses have been under pressure from the proliferation of electronic document transfer, which has reduced the need for shipping actual documents.

More recently, the company has been facing competition from Amazon Logistics, United Parcel Service (UPS), the U.S. Postal Service (USPS), regional carriers, and its old competitor DHL.

These headwinds have squeezed the company’s profit margins, with current profit net margins hovering around 4 percent.

Low-profit margins, in turn, have resulted in a low return on invested capital (ROIC), which lags the cost the company pays to raise it in the capital markets.

According to recent Gurufocus.com estimates, FedEx’s ROIC, a measure of how effectively a company allocates capital to different projects, is currently 6.24 percent, below the weighted average cost of capital, which stands at 7.50 percent. FedEx earns returns that do not match up to its cost of capital, destroying value as it grows.

To cope with the sluggish growth that fails to create value for its stockholders, FedEx has been raising prices and cutting costs by retiring aircraft to improve the efficiency of its global network.

In the fiscal fourth quarter, for instance, the company took a non-cash impairment charge of $21 million ($0.07 per diluted share) for the permanent retirement of 12 aircraft, including seven A300-600 aircraft, three MD-11 aircraft, and two Boeing 757-200 aircraft, as well as eight related engines.

This non-cash impairment follows a $157 million ($0.48 per diluted share) impairment a year ago, which was used to permanently retire 22 Boeing 757-200 aircraft and seven related engines.

Meanwhile, in December 2024, FedEx announced a change in its business model, dividing itself into two publicly traded companies, FedEx and FedEx Freight, by June 2026. These two new entities will be better positioned to allocate capital effectively and pursue growth opportunities in a revolving market environment.

While it’s still too early to determine whether the new business model will achieve this goal, Dietrich is optimistic about this prospect.

“Now that we’re into a new fiscal year, we’re very excited about the significant value creation opportunities ahead for both FedEx Corporation and the future standalone FedEx Freight Company,” he said.