Oct 28 (Reuters) – FedEx is paying more to hire extra truckers, a cost that weakened margins in its core US express delivery segment in the third quarter and is expected to hit even harder in the holiday season quarter, the package delivery firm said on Wednesday.
FedEx shares fell 3.2% in extended trading as margin concerns overshadowed a bigger-than-expected third-quarter profit that prompted executives to raise their 2026 earnings forecast.
FedEx said its US express margin dipped to 6.6% from 6.8% the year earlier due to pricier rates for hired truckers who handle about 10% of capacity. Record diesel prices and a shrinking pool of available drivers have raised those rates.
“We expect that to have a bigger impact during peak in Q4,” said Claude Russ, FedEx’s interim chief financial officer, referring to the critical holiday quarter when average daily volumes can double on certain dates.
PROFIT FORECAST BEATS ESTIMATES
FedEx forecast annual profit above estimates after reporting a 28% rise in earnings from the July-September quarter, driven by improved pricing, higher volumes and cost-saving measures.
The Memphis-based company said those factors were partly offset by the cost of hiring additional transportation, increased pilot pay and variable compensation, as well as changing US tariff policies.
“We remain committed to disciplined operational execution to reduce our cost-to-serve while focusing on profitable growth,” CEO Raj Subramaniam said.
FedEx expects 2026 adjusted profit of $18 to $18.60 per share, above analysts’ expectation of $17.73 per share, according to data compiled by LSEG.
The company switched to reporting on a calendar basis rather than according to a fiscal year beginning with the latest quarter, following the spinoff of its freight trucking unit on June 1.
FedEx, a bellwether for global trade, reported third-quarter adjusted profit of $3.74 per share, up from $2.93 per share the year before. Share buybacks increased earnings in the latest quarter by 2 cents per share. Analysts, on average, expected earnings of $3.36 per share, according to data compiled by LSEG.
As part of a multiyear restructuring, FedEx has cut billions of dollars in costs, is combining its ground and express delivery options and automating some operations.
It also closed the sale of its supply chain subsidiary as it focuses on its core express business.
The slimmed-down company is under investor pressure to bolster profits and reduce costs as rival UPS shows early signs of making headway on those fronts. During its earnings call, some analysts pressed the company on why its margins are lagging those reported by UPS.
(Reporting by Nandan Mandayam and Lisa Baertlein; Editing by Pooja Desai and Rod Nickel)
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