FedEx Rallies After Strong Earnings Outweigh Aircraft Grounding Costs
Shares climb as the logistics giant raises its full-year forecast, helping investors look past a projected $175 million hit from its grounded MD-11 fleet.
FedEx Corporation (NYSE: FDX) shares rose in recent trading as investors focused on a robust quarterly earnings report and upgraded full-year guidance, overshadowing news that the grounding of its MD-11 cargo fleet will create a significant cost headwind heading into the new year.
The stock closed at $287.12, a gain of 1.74%, after the company posted impressive second-quarter results that surpassed analyst expectations. The positive market reaction suggests investors are prioritizing the company's strong performance and brightened outlook over the near-term operational challenges.
For its second quarter ending November 30, FedEx reported adjusted earnings of $4.82 per share on revenue of $23.5 billion. The performance handily beat analyst forecasts, which had projected an average EPS of $4.11 on $22.78 billion in revenue. Buoyed by the results, the Memphis-based company raised its full-year adjusted EPS guidance to a range of $17.80 to $19.00.
However, tucked within the otherwise bullish report was a significant operational issue. Company executives disclosed they anticipate incurring up to $175 million in costs related to the temporary grounding of 28 of its McDonnell Douglas MD-11 freighter aircraft. The grounding follows a mandate from the Federal Aviation Administration (FAA) after a November 4 crash involving one of the aging cargo jets, according to reports from Air Cargo News.
The financial impact stems from the extensive inspections and potential modifications required before the aircraft can return to service, which is not expected until the fourth fiscal quarter of 2026. In the interim, FedEx faces higher costs from scaling up contingency plans, including deploying spare aircraft and relying on more expensive contract carriers to handle volume during the crucial peak holiday season.
"The team has done an incredible job to minimize service disruptions to our customers," a company executive stated on the Q2 earnings call. Despite the disruption, FedEx is navigating the challenge while benefiting from strong demand and successful cost-management initiatives across its Ground and Express segments.
The market's willingness to look past the MD-11 issue was reinforced by analyst sentiment. Following the earnings release, Wolfe Research raised its price target on FDX to $328, maintaining an "Outperform" rating. Similarly, BofA Securities lifted its target to $315, though it held its rating at "Neutral," signaling that while the earnings were strong, the operational risks are still being monitored.
With a market capitalization of over $66 billion, FedEx's ability to absorb these costs while raising its outlook underscores the scale of its operations. The company's performance is often seen as a bellwether for global economic activity. The strong results, even with the grounding, suggest a resilient demand for shipping and logistics services. Investors will be closely watching for the MD-11 fleet's return to service and whether the associated costs can be contained within the company's current projections.