FedEx Corp. lowered expectations for its less-than-truckload unit, FedEx Freight, Thursday after the market close. A planned spin-off of the LTL business, into a separate publicly traded company, is now scheduled for June 1.
During FedEx Freight’s fiscal second quarter ended Nov. 30, revenue fell 1.7% year over year to $2.14 billion. A 2.8% decline in tonnage was partially offset by a 1.1% increase in revenue per hundredweight, or yield.
Shipments decreased 3.9% year-over-year and 2.9% from the quarter ended August 31. Weight per shipment increased 1.2% year-over-year. (Increased shipping weight posed a slight obstacle to performance measurement.)
November manufacturing data shows the industrial complex has been in recession for 35 of the past 37 months. The Purchasing Managers’ Index recorded a value of 48.2 last month, 50 basis points lower than in October. (A number above 50 signals expansion while a number below 50 indicates contraction.) The new orders index – an indicator of future activity – fell 200 basis points to 47.4.
The LTL unit recorded an adjusted operating ratio (inverse of operating margin) of 88.7%, a decline of 300 basis points year-over-year. Adjusted RO excludes $152 million in one-time costs associated with spinoffs.
Low revenue and a 110 basis point annual increase in wages, salaries and benefits (as a percentage of revenue) were the main obstacles. FedEx Freight has completed more than 85% of the recruiting for what will become a 400-person LTL sales team. Hiring and other costs represented a drag of $25 million (120 basis points) during the period.
FedEx Freight’s revenue is now expected to decline slightly year over year in the fiscal year ending May 31. (The company previously forecast a single-digit year-over-year revenue increase.) Daily shipments are expected to decline by a single-digit percentage, which is expected to be partially offset by a modest increase in yields. The drop in volumes should continue to weigh on margins. (Operating profit is now expected to decline by $300 million year-over-year from the previous forecast of a $100 million increase.)
FedEx Freight’s previously announced general rate increase of 5.9% (on average) will take effect January 5.
FedEx (NYSE: FDX) reported consolidated adjusted earnings per share of $4.82 for its fiscal second quarter. The result was 71 cents above the consensus estimate and 77 cents higher year-over-year. Revenue of $23.5 billion was $700 million above expectations.
The company raised its guidance for its consolidated operations in fiscal 2026.
It now expects consolidated revenue to grow 5-6% year-over-year (previous outlook called for a 4-6% increase) and full-year adjusted EPS to be between $17.80 and $19 ($17.20-$19 previously). The adjusted EPS number excludes several items, including pension plan accounting adjustments, costs associated with the spin-off, and business optimization costs, among others.
