Grounded MD-11 planes could cost FedEx $175 million in peak season, drag on near-term profit

By Abhinav Parmar and Lisa Baertlein

Dec 18 (Reuters) – Parcel delivery company FedEx said it was planning for $175 million in unexpected peak-season costs to find trucks and planes to move goods that would have flown on its fleet of MD-11 cargo planes that were grounded after a deadly UPS crash last month. 

FedEx Chief Financial Officer John Dietrich told analysts that earnings for the current quarter ending February 28 will be lower than the better-than-expected quarterly result reported on Thursday. The MD-11 grounding, costs tied to next summer’s spin-off of its Freight trucking business and other items are responsible for the hit to earnings, he said.

Shares in FedEx finished up less than 1% at $288.70 in after-hours trading.

FedEx and rival UPS are in the middle of the crucial peak holiday shipping season stretching from the end of November into early January, when their average daily volumes can double.

Both companies have been rushing to find replacement trucks and planes after the November 4 crash of a Boeing MD-11 plane in Louisville, Kentucky that killed 14 people including the three pilots on board. 

FedEx had 28 MD-11s in operation when the Federal Aviation Administration grounded the jets days after the crash. The company incurred $25 million in costs tied to the grounding in November, and that is expected to rise to about $150 million in December, Dietrich said.

“It’s an expensive time of year to be getting outsourced lift to begin with, let alone when you have fleet grounded,” he said.

FedEx currently expects the MD-11 fleet will return to service in the company’s fiscal fourth quarter ending May 31, 2026, Dietrich said.

SECOND-QUARTER EARNINGS TOP ESTIMATES

The company reported fiscal second-quarter profit and revenue above Wall Street’s estimates on Thursday and lifted the low end of its full-year earnings outlook, as peak-season pricing actions and cost-cutting efforts helped offset softer shipment volumes.

“We are very, very pleased with the underlying momentum that we have in our business. This is now working,” CEO Raj Subramaniam said of the company’s sweeping turnaround efforts.

FedEx has been pursuing a multi-year cost overhaul since 2023, aiming to take billions out of its operating base by idling aircraft, shuttering sites and integrating its formerly separate Ground and Express operations. 

For the fiscal year ending in May 2026, the company is targeting an additional $1 billion in savings.

Results at the company’s Express segment improved in the second quarter ended November 30, driven by higher U.S. domestic and international priority package yields, which were partially offset by the financial impact of global trade policy changes and the grounding of the MD-11 aircraft fleet, FedEx said.

During the quarter, FedEx added lucrative healthcare and automotive clients, had a rise in business-to-business shipments with healthy margins and set up a team to handle shipments tied to the data center construction boom, executives said.

However, operating results at FedEx Freight, which the company is on track to spin off on June 1, 2026, decreased in line with the broader trucking industry due to lower shipments and higher wage rates, FedEx said.

U.S. manufacturing also contracted for the ninth consecutive month in November, signaling weaker volumes for transportation providers like FedEx, which rely on business-to-business shipments linked to industrial activity.

FedEx and UPS are viewed as barometers of the global economy, given their broad customer base across industries and geographies.

FedEx on Thursday reported an adjusted profit of $1.14 billion, or $4.82 per share, for the fiscal second quarter, up from $990 million, or $4.05 per share, a year earlier. Analysts, on average, were expecting a profit of $4.11 per share, according to data compiled by LSEG.

The company now projects annual profit of $17.80 to $19.00 per share, raising the low end of its previous $17.20 to $19.00 range. The midpoint of the updated forecast also tops the analysts’ average estimate of $18.22 per share.

It also lifted its 2026 revenue outlook, calling for 5% to 6% year-over-year growth, versus its earlier forecast of 4% to 6%. 

(Reporting by Lisa Baertlein in Los Angeles and Abhinav Parmar in Bengaluru; Editing by Alan Barona and Jamie Freed)