FedEx Freight Stock Rallies 13% as Spinoff's First Report Shows Pricing Power and Profit Outlook Is Raised

FedEx Freight shares rallied more than 13% in early trading Friday. The newly independent trucking company's first earnings report as a standalone business showed strong pricing and an improved profit outlook.

The stock rose $14.76, or 13.4%, to $124.64, lifting the company's market value to about $18.6 billion. Even after the jump, the shares are down about 27% over the past 52 weeks.

FedEx Freight, the largest less-than-truckload carrier in the United States, separated from FedEx Corp. in June.

First report as standalone company

The company reported results for a four-month transition period ended Sept. 30 as it moves to a calendar-year reporting schedule.

Revenue rose 9.2% to $3.3 billion. Adjusted operating income rose 16.4% to $510 million, and the adjusted operating margin improved 90 basis points to 15.5%.

On a reported basis, operating income fell 6.1% to $383 million, reflecting separation-related costs. Adjusted earnings were $2.15 a share, down 24.6%.

"Our first four months as a standalone company reflect solid execution across the organization," President and Chief Executive John Smith said.

Pricing power

Revenue per shipment rose 10.1% to $413, and revenue per hundredweight rose 8.6%, even as average daily shipments slipped 1.4% and tonnage was flat.

Smith told Transport Topics that independence has given the company more control over pricing.

"We were tied to the mother ship on pricing decisions," Smith said. "Now we are on our own, and we're able to make sure that we're getting paid for what we do."

Key figures (four months ended Sept. 30):

Revenue: $3.3 billion, up 9.2% Adjusted operating income: $510 million, up 16.4% Adjusted operating margin: 15.5%, up 90 basis points Adjusted EPS: $2.15 Revenue per shipment: $413, up 10.1% Average daily shipments: 88,900, down 1.4%

Outlook raised

FedEx Freight raised its outlook for the transition period from June 1 to Dec. 31.

It now expects adjusted operating income of $695 million to $715 million, up from $605 million to $645 million. Adjusted earnings are forecast at $2.80 to $2.90 a share, up from $2.40 to $2.60.

"We have updated our transition period outlook to reflect fuel tailwinds and slightly higher volume assumptions," Chief Financial Officer Marshall Witt said.

For the three months ending Dec. 31, the company expects revenue of $2.30 billion to $2.37 billion and adjusted earnings of 65 to 75 cents a share.

Weak freight market

The results come during a prolonged slump in the U.S. freight market, which has weighed on trucking volumes for more than two years.

"We have the ability with the leverage in this company to compete in a down market," Smith said.

The company ended September with $1.6 billion in liquidity and repaid $100 million of debt early. It said it is on track to announce its 2027 dividend and share buyback plans, subject to board approval.

FedEx Freight pays FedEx Corp. an average of $9 million a month for technology services under transition agreements, Transport Topics reported.

Rebound from slump

FedEx Freight shares had fallen since the spinoff amid weak freight demand and questions about the standalone company's costs. Friday's rally suggests investors were reassured by its pricing discipline and higher profit outlook.