FedEx Freight (NYSE:FDXF) reports next week, its first full set of results since splitting from FedEx in June. But the number to watch isn’t revenue. In its last report, fiscal fourth-quarter revenue rose 4.8% even as average daily shipments fell 5.9%. The question is whether a bigger bill per shipment can turn into bigger profit before freight volumes come back.
FedEx Freight is a less-than-truckload carrier, which means it moves pallets from many businesses on the same trailer instead of filling a truck for one customer. The company says it is the largest in North America, with nearly 30,000 vehicles and more than 365 locations. The facts show revenue recovering faster than profit, and a stock priced as if profit will catch up.
Fuel and Heavier Loads Are Lifting Revenue
Revenue per shipment jumped 11.5% in the fiscal fourth quarter, but the company’s release credits fuel surcharges and heavier loads. Base revenue for each hundred pounds shipped actually slipped slightly. Fuel surcharges follow fuel prices, so that part of the gain can reverse.
That leaves profit exposed. Adjusted operating income fell 23.9% in the same quarter even though revenue rose, as lower shipments, higher wage rates and separation costs weighed on results. Over the past three years, revenue has shrunk about 3.4% a year and earnings per share has fallen about 35.5% a year, so any recovery starts from a low base. If you’re looking for more freight and shipping names, check out 10 Best Logistics Stocks to Buy Right Now.
Photo by Arturo Añez on Unsplash
Management Guides to Flat Margins This Year
Because of the fiscal year change, the current period runs seven months, through the end of the year. For that stretch, the company guided for revenue growth of 4% to 6% and an adjusted operating margin of 11.5% to 12.0%, against 11.8% a year earlier. Sales are expected to grow, but profit on each dollar of sales is expected to stay about where it was.
The strongest objection comes from the company’s own outlook. Management expects about $130 million in spin-off costs. It also carries debt costs. CNBC reported a large cash dividend to FedEx at the spin-off, and the company guided to roughly $135 million of interest expense for the period.
None of that breaks the case for the business, but it caps how much credit its size earns. In September, the company put sales and technology under one executive when it named Michael Rodgers chief commercial and technology officer. A shareholder is waiting for shipments to return, because base pricing hasn’t done the work so far. If you’re interested in recovery stories, we recently compiled a report on 7 Best Turnaround Stocks to Buy in 2026.
What the Stock Price Already Assumes
On analyst estimates, the stock trades at about 24.6 times expected 2026 adjusted earnings, against a median of about 19.1 for its sector, a premium of about 28.7%. Because the stock began trading in June, there is no five-year average to compare, and no consensus growth rate is available for that year.
So the comparison rests on the sector alone, and that median covers industrial companies broadly, not only freight carriers. It is a rough yardstick, but it says investors are paying up for a recovery. Margins would have to improve to justify that premium, and this year’s guidance doesn’t show it yet. For investors looking for cheaper ideas, our list of 10 Best Undervalued Stocks to Buy in October is worth a look.
Can margins recover? Guidance says not this year, and the first real evidence arrives with next week’s report. The thing to watch is shipments. If they stop falling while revenue per shipment holds, the premium starts to make sense. If they keep falling, fuel surcharges are carrying the results.
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This article is originally published at Insider Monkey.
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