FedEx Lifts Profit Outlook as Network Plan Gains Traction

The more bullish outlook indicates FedEx expects to withstand mounting economic turmoil from the war in Iran and soaring energy prices. (Bess Adler/Bloomberg)

FedEx Corp. reported it is on track with the planned spinoff of its freight division into a new publicly traded company, while discussing its third-quarter results March 19.

The Memphis, Tenn.-based transportation services company is aiming to complete the spinoff June 1. FedEx Freight’s operating results decreased due to costs associated with the spinoff, lower shipments and higher wage rates, partially offset by increased yields. But these costs also were separated out from the legacy operations.

“We are confident that the separation will unlock meaningful long-term value for our stockholders,” FedEx CEO Raj Subramaniam said during a call with investors. “Importantly, we are laser-focused on revenue quality. As a result, higher rates and revenue per shipment at FedEx Freight help mitigate lower shipment volumes.”

The FedEx board of directors decided to pursue a full separation of the freight business in December 2024. The transaction is planned to be implemented through the spinoff of shares of the new company to stockholders. But the company also pointed out that it incurred costs associated with this process during the third quarter that were mostly related to professional fees. 

“At FedEx Freight, revenue declined 5%, pressured by lower shipments,” said Brie Carere, chief customer officer. “We are encouraged by our sequential increases in both revenue per shipment and in the attainment of contractual price increases as FedEx Freight prioritizes revenue quality in a challenged LTL market.”

FedEx Freight revenue per shipment increased 1%, primarily due to the increased weight per shipment. The segment also experienced a 6% decline in shipments that was in line with ongoing LTL segment challenges. Carere said she is confident freight is well-positioned to grow with nearly all of the planned dedicated salesforce now hired, and new pricing models in place.

The division now expects fiscal 2026 revenue to decline by low single digits from a year earlier, with revenue flat to slightly down in the fourth quarter as weakness in LTL demand persists, Carere said. Yield growth in the quarter is expected to partially offset a mid-single-digit percentage decline in shipments.

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FedEx Freight recently completed the issuance of $3.7 billion of senior notes Feb. 5. The plan is to distribute the net proceeds from the offering of the notes to FedEx Corp. as part of the consideration for its contribution of assets to the spinoff process. FedEx Freight is expected to host an investor day in New York City on April 8.

“At FedEx Freight, adjusted operating income declined $127 million year over year,” Chief Financial Officer John Dietrich said. “All these costs were primarily related to hiring and other necessary stand-alone public company costs that will drive long-term stockholder value creation. However, base yield improvement partially offset these spin and demand headwinds.”

FedEx Corp. reported that total revenue increased 8.1% to $24 billion from $22.2 billion. It also posted overall net income of $1.06 billion, or $4.41 a diluted share, for the third quarter. That compared with $909 million, $3.76, during the same time the previous year. FedEx Freight spinoff costs reduced $194 million of that at a margin of 0.8%. 

FedEx Network 2.0 is a strategic initiative aimed at merging the express and ground networks into a unified organization by 2027. The report forecasts this year the initiative, alongside structural cost reductions, will drive permanent cost reductions of more than $1 billion. The freight spinoff and these initiatives are part of an overall effort to improve the network.

“FDX reported fiscal 3Q results well above our forecast and consensus expectations as volume and yield growth buck industry trends on high-quality business wins,” TD Cowen analyst Jason Seidl wrote in a report. “Network 2.0 execution visible in Express margins. Freight segment widely missed our estimates as spin costs creep upwards ahead of June separation day.”

FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 3 on the TT Top 50 list of the largest global freight carriers. FedEx Logistics ranks No. 43 on the TT Top 100 logistics companies list.