FedEx's yearslong turnaround is facing a big test after executing on a major catalyst

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Fed Ex's yearslong turnaround is facing a big test after executing on a major catalyst Published Fri, Jun 12 20262:00 PM EDTUpdated 38 Min Ago Paulina Likos@paulina_likos Fed Ex has spent the last three years rebuilding its business. Investors now want to know if the payoff is finally arriving. Fed Ex reports is fiscal 2026 fourth quarter earnings on the evening of June 23, giving shareholders their latest look at the company's business turnaround. Shares of the package delivery company are up 42% year to date, as Wall Street increasingly embraces CEO Raj Subramaniam's transformation plan. After that strong run, including a 52-week high Friday, the key question heading into the print is whether FedEx can continue generating higher profits from every package moving through its network. That means the delivery giant must continue to expand margins. Jim Cramer thinks it can, and came away further convinced after interviewing Subramaniam and John Smith, CEO of the newly spun-off FedEx Freight, on May 12 from the company's largest global sorting hub at the Memphis International Airport. Less than a week later, the Club initiated a position in FedEx , and captured a stake in FedEx Freight when it was separated on June 1. We got one FDXF shares for every two FDX shares we owned. FedEx kept 20% ownership in FedEx Freight, the largest less-than-truckload (LTL) carrier in North America, with industry-leading transit times. FDXF opened on its first trading day as an independent company at $164 and has moved up slightly of the past 10 trading days. We intend to kept our Freight shares. FedEx Freight did hit a rough patch Friday on a price target cut and earlier this week after Amazon announced a U.S. expansion of its LTL offering as part of recently formed Amazon Supply Chain Services (ASCS) arm. In logistics, less-than-truckload service is for items too big for regular delivery but not big enough for an entire tractor trailer. So, those multiple smaller loads from different shippers are put together to fill up a whole truck. That Amazon news on Wednesday sent shares of FedEx Freight down more than 3%, along with other LTL stocks including XPO , ArcBest , and Saia over concerns expansion to outbound freight, non-Amazon destinations, and the targeting of large shippers. Amazon noted the focus remains on retail freight. We viewed the FedEx Freight selling as an overreaction. The turnaround During the pandemic, FedEx became an essential link in the global supply chain as shoppers stuck at home increasingly turned to online shopping. Business-to-consumer (B2C) shipments surged while business-to-business (B2B) shipping activity weakened due to the Covid lockdowns and disruptions. To accommodate this unprecedented demand, FedEx rapidly expanded its delivery network and facilities. However, as the pandemic wound down and e-commerce growth normalized, the company found itself with excess capacity and a network built for a level of delivery demand that no longer existed. It forced management to rethink how FedEx operated. Since taking over as CEO four years ago, Subramaniam has reshaped the company around four strategic priorities: growing in higher-margin verticals, transforming the network, leveraging data and technology, and cutting costs. Subramaniam, a company veteran, joined in 1991 and held leadership roles across Asia and the U.S. He became chief marketing and communications officer, was promoted to president and chief operator officer in 2019. He joined the board a year later — and ultimately succeeded founder Fred Smith as CEO in June 2022. Under Subramanian, the first initiative FedEx announced was DRIVE, an efficiency plan that aimed to simplify operations through procurement savings, transportation optimization, automation and find different ways to lower overhead expenses. From fiscal 2023 through fiscal 2025, FedEx removed about $4 billion in costs from the business. Management expects another $2 billion of cost savings by fiscal 2027. The second initiative was FedEx Network 2.0, aimed at streamlining logistics. The effort makes package pickups and deliveries easier and faster through a new unified consolidated transportation structure. Under the Network 2.0 model, FedEx closed 100 stations, allowing the company to move the same amount of freight through fewer facilities. That helped eliminate redundant transportation routes and combine ground and express operations. Management also scaled back on spending. Historically, FedEx spent heavily on expanding capacity. In fiscal 2025, capital expenditures were reduced by about $1.1 billion for a total of $4.1 billion compared to the prior fiscal year's $5.2 billion in spend. The company's capex as a percentage of revenue was 4.6%, the lowest since FedEx was established in 1998.