FDX Looks to Cut Costs to Mitigate Demand Woes: What's the Road Ahead?

FedEx FDX is realigning its costs under a company-wide initiative called DRIVE, in response to post-COVID business adjustments. The DRIVE program resulted in $1.8 billion in permanent savings in fiscal 2024. The program resulted in an additional $2.2 billion in cost savings in fiscal 2025.

Geopolitical uncertainty and high inflation continue to hurt consumer sentiment and growth expectations. The weak demand scenario due to the economic slowdown has led to a decline in the volume of packages shipped. Faced with these headwinds, the company is focusing on cutting costs. In fiscal 2026, FDX anticipates $1 billion in transformation-related savings from DRIVE and Network 2.0.

These cost reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff. FedEx Supply Chain, the contract logistics arm of the company, has announced the layoff of 611 employees at two neighboring distribution centers in Memphis, TN, according to a FreightWaves report.

Last month, FedEx reported better-than-expected earnings per share and revenues for the first quarter of fiscal 2026 (ended Aug. 31, 2025). The results were mainly aided by the company’s cost-cutting initiatives. FDX expects a sequential improvement in adjusted EPS in the fiscal second quarter. The Zacks Consensus Estimate for the fiscal second quarter is currently pegged at $3.99 per share compared with $3.83 reported on an adjusted basis in the fiscal first quarter.

FDX’s rival, United Parcel Service UPS, is also cutting costs to combat the weak demand scenario. As part of this exercise, United Parcel Service is offering buyouts to delivery drivers for the first time in its 117-year history. United Parcel Service’s full-time drivers are eligible for this offer.  The company has also decided to trim its workforce as part of its cost-cutting exercise.

Apart from the tariff-induced economic uncertainties, UPS’ decision to reduce business with its largest customer, Amazon AMZN, contributed to the decision to trim the workforce. UPS’ management has reached an agreement in principle with Amazon to lower the latter’s volume by more than 50% by June 2026. According to Carol Tome, UPS’ chief executive officer, Amazon was not its most profitable customer.

FDX’s Price Performance, Valuation & Estimates

Shares of FDX have gained in excess of 6% in the past six months, outperforming its industry.

6-Month Price Performance

From a valuation standpoint, FDX trades at a 12-month forward price-to-earnings ratio of 11.92X, making it expensive compared with industrial levels. 

The Zacks Consensus Estimate for FDX’s fiscal second-quarter, third-quarter, full-year 2026 and 2027 earnings has been revised downwards over the past 60 days.

FDX’s Zacks Rank

FDX currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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