FedEx Freight Raises Q4 TY2026 Expectations as Adjusted Profit Rises

FedEx Freight (NYSE: FDXF) raised its expectations for the three months ending December 31, 2026, after higher fuel revenue and stabilizing shipment-volume and base-yield trends supported stronger adjusted profitability during the first four months of its transition year.

The company now expects fourth-quarter transition-year revenue of $2.30 billion to $2.37 billion, adjusted operating income of $185 million to $205 million and adjusted diluted earnings per share of $0.65 to $0.75. The forecast implies an adjusted operating margin of 8.0% to 8.6%. Management said the updated expectations incorporate higher fuel assumptions and early benefits from stabilizing volume and base yield.

For the seven months ending December 31, FedEx Freight forecast revenue of $5.58 billion to $5.65 billion and adjusted operating income of $695 million to $715 million, representing an adjusted operating margin of 12.5% to 12.7%. Adjusted EPS is expected to be $2.80 to $2.90, with an effective tax rate of about 27%. The company said results through September supported an adjusted outlook above the seven-month guidance issued on June 25.

Revenue and adjusted profit rise

Revenue for the four months ended September 30 increased 9% to $3.3 billion from $3.0 billion a year earlier. Adjusted operating income rose 16% to $510 million, lifting the adjusted operating margin to 15.5% from 14.6%. Adjusted diluted EPS was $2.15.

On a GAAP basis, four-month operating income declined to $383 million from $408 million, while operating margin fell to 11.7% from 13.6%. The company recorded $127 million of spin-off costs, compared with $30 million in the prior-year period. Excluding those costs, adjusted operating income was $510 million.

For the three months ended September 30, revenue was $2.4 billion, compared with $2.3 billion a year earlier. Adjusted operating income increased to $358 million from $320 million, and adjusted margin rose to 14.7% from 14.2%. GAAP operating income declined to $253 million from $290 million as spin-off costs increased to $105 million from $30 million.

Fuel and pricing offset lower shipments

Average daily shipments were about 89,000 for both the four- and three-month periods, down 1.4% and 0.7% year over year, respectively. The presentation indicated that shipment trends showed signs of stabilization through September.

Revenue per shipment for the four-month period rose 10.1% to $413.00, helped substantially by fuel surcharges. Excluding fuel, revenue per shipment increased 1.6% to $318.23. Revenue per hundredweight advanced 8.6% to $44.03, while the fuel-excluded measure edged up 0.3% to $33.93. Weight per shipment increased 1.3% to 938 pounds.

FedEx Freight attributed the revenue increase to higher fuel revenue, one additional business day and modest improvements in weight and base yield. Management also cited strong pricing renewals as positioning the business for future yield improvement, while noting that investments in technology and the standalone organization continued.

Service metrics remained strong, with pickup reliability and on-time service both at approximately 98% through September. The claims ratio fell to 0.43%, while claims filing frequency was 0.27%. Both measures improved by 20 basis points from 2022 levels. The company also reported a year-over-year improvement of more than 3% in cube utilization and a roughly 200-basis-point increase in first-time invoice accuracy.

Cash flow and balance-sheet priorities

FedEx Freight generated $239 million of free cash flow during the four-month period, down from $1.03 billion a year earlier. Cash provided by operating activities was $390 million, while capital expenditures totaled $151 million. Capital spending represented 4.6% of revenue.

The company repaid $100 million of debt ahead of schedule and reported a gross leverage ratio of 2.8 times adjusted EBITDA at September 30. It expects that ratio to decline to approximately 2.5 times within 12 months of the spin-off. Liquidity totaled $1.6 billion, comprising $388 million of cash and a $1.2 billion undrawn revolving credit facility.

Management’s capital-allocation framework prioritizes organic investment, debt reduction, shareholder returns and selective acquisitions. FedEx Freight plans to maintain capital expenditures at about 5% of revenue over the medium term and is converting three key service centers from leased to owned properties.

The outlook assumes the company’s current economic and fuel-price expectations and no additional economic, geopolitical or international trade developments. Key uncertainties include shipment volumes, customer demand, pricing, fuel costs and surcharge recovery, spin-off expenses and dis-synergies, technology disruptions, competition, labor relations and regulatory changes. The company also cautioned that mark-to-market retirement-plan accounting adjustments, which are excluded from its EPS and tax-rate forecasts, could materially affect reported results.