FedEx Freight — Q3 TY26 Earnings Summary

Financial Performance:

• Revenue for the four months ended September 30, 2026, was $3.3 billion, a 9.2% increase year-over-year.
• Operating income was $383 million, a 6.1% decrease year-over-year; operating margin was 11.7%, a 190 basis point decrease.
• Adjusted operating income was $510 million, a 16.4% increase year-over-year; adjusted operating margin was 15.5%, a 90 basis point increase.
• Diluted EPS was $1.54, a 43% decrease year-over-year; adjusted diluted EPS was $2.15, a 24.6% decrease year-over-year.
• Net income for the four months ended September 30, 2026, was $230 million compared to $404 million in the prior year period.
• Cash and cash equivalents were $388 million as of September 30, 2026, with total liquidity of $1.6 billion.
• Capital expenditures for the four months ended September 30, 2026, were $151 million.
• The company repaid $100 million of outstanding debt ahead of schedule during the period.
• Average daily shipments were 88.9 thousand, a 1.4% decrease year-over-year.
• Revenue per shipment was $413.00, a 10.1% increase year-over-year; revenue per shipment excluding fuel was $318.23, a 1.6% increase.
• Revenue per hundredweight was $44.03, an 8.6% increase year-over-year; revenue per hundredweight excluding fuel was $33.93, a 0.3% increase.
• Tonnage per day was 41.7 thousand tons, flat year-over-year.
• Operating days for the four-month period were 86, compared to 85 in the prior year.

Guidance and Future Outlook:

• For the full Transition Period (June 1 through December 31, 2026), revenue is forecast at $5.58 billion to $5.65 billion.
• Adjusted operating income for the Transition Period is forecast at $695 million to $715 million, up from a prior forecast of $605 million to $645 million.
• Adjusted operating margin for the Transition Period is forecast at 12.5% to 12.7%, up from a prior forecast of 11.5% to 12.0%.
• Diluted EPS for the Transition Period is forecast at $1.69 to $1.79 before MTM retirement plan adjustments, and $2.80 to $2.90 after excluding spin-off costs.
• Capital expenditures for the Transition Period are expected to total approximately $365 million.
• For the three months ending December 31, 2026, revenue is forecast at $2.30 billion to $2.37 billion, compared to $2.07 billion in the prior year.
• Adjusted operating income for the three months ending December 31, 2026, is forecast at $185 million to $205 million, compared to $162 million in the prior year.
• Adjusted operating margin for the three months ending December 31, 2026, is forecast at 8.0% to 8.6%, compared to 7.8% in the prior year.
• Diluted EPS for the three months ending December 31, 2026, is forecast at $0.15 to $0.25 before MTM adjustments, and $0.65 to $0.75 after excluding spin-off costs.
• Outlook assumes current economic conditions, fuel price expectations, and no additional economic, geopolitical, or international trade developments.

Business Segments and Product Lines:

• FedEx Freight is North America's largest less-than-truckload (LTL) carrier.
• Service offerings include Priority, Economy, and Direct.
• Subsidiary FedEx Custom Critical provides expedited, time- and temperature-specific freight solutions, including Surface Expedite and White Glove Services.
• The network includes nearly 30,000 vehicles (nearly 17,000 tractors) and 40,000 dedicated team members across over 365 locations.
• Operations cover all 50 U.S. states, Canada, Mexico, Puerto Rico, and the U.S. Virgin Islands.
• The company achieved its second consecutive quarter of record-low claims ratio.

Market and Competitive Landscape:

• Revenue growth was driven by favorable fuel surcharge revenue, higher weight per shipment, an additional operating day, and an increase in base revenue per hundredweight.
• These growth factors were partially offset by softer volumes.
• The company leverages operational efficiency, data-driven technology, and a focused sales organization.

Risks and Challenges:

• The company cannot forecast mark-to-market (MTM) retirement plan accounting adjustments for the Transition Period, which could have a material effect on consolidated financial results and the effective tax rate.
• Risks include economic conditions, changes in shipment volumes, fuel price volatility, and the ability to recover fuel costs.
• Potential risks involve the successful implementation of the spin-off strategy, dis-synergies, and costs exceeding estimates.
• Risks include data breaches, technology disruptions, increased insurance and claims expenses, and labor organization efforts.
• Risks also include international conflicts, supply chain disruptions, and changes in government regulations.

Management Commentary and Tone:

• John Smith, President and CEO, stated that the first four months as a standalone company reflect solid execution and meaningful progress against strategic priorities.
• Smith expressed encouragement regarding momentum in operational, commercial, and technology initiatives and confidence in long-term success opportunities.
• Marshall Witt, CFO, noted that underlying performance was largely in line with expectations as initiatives strengthen the foundation for improved growth and profitability.
• Witt mentioned updated transition period outlook reflecting fuel tailwinds and slightly higher volume assumptions, with confidence in the base business approaching 2027.

Other Key Points:

• The reporting period represents a one-time four-month transition as the company moves to a calendar-year reporting cycle.
• The company is on track to announce its dividend and share repurchase plan for calendar year 2027, subject to board approval.
• FedEx Freight maintains a disciplined approach to capital allocation, prioritizing an investment-grade balance sheet and returning capital to shareholders.
• The company has published calendarized historical results in an accompanying Form 8-K and Stat Book for year-over-year comparability.
• Outstanding diluted share count is forecast at 149.9 million for the Transition Period and 150.0 million for the three months ending December 31, 2026.
• Interest expense for the Transition Period is forecast at approximately $130 million, and for the three months ending December 31, 2026, at approximately $55 million.
• The effective tax rate (ETR) before MTM adjustments is forecast at approximately 27% for the Transition Period and 27% for the three months ending December 31, 2026.