FedEx Freight's first 10-K (year to May 31, 2026): revenue slipped 1.1% to $8.8B as shipments fell 4.4%, and $492M of spin-off costs cut operating income 62% to $540M and EPS 51% to $4.38.
Revenue
$8.8B
-1.1% YoY
Net income
$655M
-51.3% YoY
Diluted EPS
$4.38
-51.3% YoY
Operating margin
6.1%
Overview
FedEx Freight, the largest less-than-truckload (LTL) carrier in North America, filed its first annual report as a public company on August 5, 2026. It covers the fiscal year that ended May 31, 2026, the last year the business belonged to FedEx; the spin-off happened the next day, June 1. (LTL carriers move shipments too small to fill a whole truck. Freight from many customers is collected, sorted at terminals and delivered on shared trucks.)
Revenue was almost flat, down 1.1% to $8.80 billion. Operating income fell 62% to $540 million. The main reason was $492 million of separation costs: legal, consulting and advisory fees plus an employee incentive plan tied to the spin-off. Weaker demand also played a part. Net income fell 51% to $655 million, or $4.38 per diluted share. Net income fell less than operating income because $351 million of interest income from FedEx propped up the bottom line. That income stopped at the spin-off.
Starting June 1, 2026, the company's fiscal year ends on December 31 instead of May 31. The next reports will therefore be a 10-Q for July–September 2026 and a 10-KT "transition report" covering the seven months from June to December 2026.
Key metrics
Metric
FY2026 (to May 31, 2026)
FY2025
YoY Change
Revenue
$8,795M
$8,892M
-1.1%
Operating income
$540M
$1,404M
-61.5%
Operating margin
6.1%
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The prior-year EPS has been restated for the roughly 149.5 million shares created at the spin-off. Before the spin, the company had just 100 shares, all owned by FedEx.
Fewer shipments, higher prices per shipment
LTL results come down to two things: how many shipments the network handles and how much it earns on each one.
Volume fell. Average daily shipments dropped 4.4% to 86,100. Priority (faster) service fell 3.7% and Economy fell 6.0%. The company blames "continued weak industrial production, global trade policy uncertainty, and excess capacity in the LTL industry." LTL volume tracks factory output and the movement of goods between businesses closely, so a soft industrial economy shows up directly in shipment counts.
Pricing held up. Revenue per shipment rose 3.5% to $386.63. The 10-K says this was "primarily driven by higher fuel surcharges and weight per shipment." Revenue per hundredweight (revenue per 100 lb of freight, the industry's usual pricing gauge) rose 2.3% to $41.54.
Look at why pricing rose. A large part came from fuel surcharges, which are pass-through fees that follow diesel prices. They are not higher base rates. Heavier shipments (up 1.2% to 931 lb) also earn more per shipment without any price increase. The fourth-quarter earnings release says the same: base revenue per hundredweight actually saw a "slight decline" in that quarter. Fuel surcharges covered the higher fuel bill; fuel expense rose 6% on higher diesel prices. But the numbers do not show much underlying pricing power in a weak freight market.
The operating ratio: 84 cents became 94 cents
LTL carriers are usually judged on their operating ratio: operating expenses divided by revenue. Lower is better. An operating ratio of 93.9% means FedEx Freight spent about 94 cents to earn each dollar of revenue, compared with about 84 cents a year earlier.
Almost all of the 9.7-point deterioration comes from spin-off costs:
Separation and other costs: $492M (5.6% of revenue) vs. zero in FY2025. FedEx itself paid the prior year's spin-off costs.
Other operating expenses: +10% to $1,031M. This was driven by outside service contracts for the spin-off (including new software licenses) and higher bad-debt expense after FedEx stopped buying the company's receivables.
Salaries and benefits: +3% to $4,276M. Over 1,500 employees transferred from FedEx, and wage rates rose. Lower volumes partly offset this.
Depreciation: +9% to $512M. Gains on property sales, which are booked in this line, fell to $10M from $40M.
By our calculation, adding back the $492M of separation costs gives operating income of about $1,032M, an 11.7% operating margin. That is still about 4 points below FY2025's 15.8%. The spin-off explains most of the drop, but not all of it. Volumes fell and other costs rose faster than revenue.
Note: The June 25 earnings release reported $616M of operating income for the year. That figure uses FedEx's segment accounting. The 10-K uses standalone ("carve-out") accounting and reports $540M. This analysis uses the audited 10-K figures.
The bottom line: a one-time interest cushion goes away
Net income fell less than operating income because of $351M of "related party interest income." FedEx paid this on the cash it swept from Freight into its central cash pool. That is roughly 40% of the year's $884M pre-tax income. The cash pool ended on May 29, 2026. From now on the company will pay interest instead of earning it.
New debt from the spin-off
Before the spin, FedEx Freight borrowed $4.3 billion: $3.7 billion of senior notes issued in February 2026 and a $0.6 billion term loan. The estimated weighted-average interest rate is 4.79%. It sent $4.1 billion of the proceeds to FedEx as part of the separation. Notes mature in 2029 ($1.6B), 2031 ($1.0B) and later ($1.7B). There is also an undrawn $1.2 billion revolving credit line. The credit agreements cap total leverage at 3.75x, dropping to 3.50x seven months after the spin.
On May 31 the company held $251M of cash against $4.26B of debt (net of issuance costs). Management guides to about $135M of interest expense for June–December 2026 alone. That is a real annual cost the historical results never carried.
Cash flow and capital spending
Operating cash flow fell to $167M from $1,531M. The main reason is a one-time working-capital hit: the company bought back about $1.0 billion of customer receivables that it had previously sold to FedEx. (Receivables are money customers owe for past shipments.) Freight now waits to collect that cash itself instead of being paid upfront by FedEx.
Capex fell 13% to $379M. Spending on vehicles and trailers dropped 30% and dock equipment 31%. Spending on facilities (+60%) and IT (+69%) rose. For June–December 2026, management expects $320–340M of capex. That includes technology the company needs so it can stop relying on FedEx's systems under the Transition Services Agreement, which lasts up to about two years.
Takeaway: Last year's reported earnings overstate what FedEx Freight will earn on its own. Two things flattered the numbers: $351M of interest income from FedEx that has now ended, and pricing gains that came more from fuel surcharges than from base rates. Two things now weigh on them: new debt costing about $135M in interest for seven months, and extra standalone costs. Even without the one-off separation costs, the operating margin (11.7% by our math) was well below the prior year's 15.8%.
Outlook
The 10-K expects "softness in the industrial economy to continue to put pressure on demand for LTL services for the remainder of calendar year 2026," along with "elevated expense levels in support of our separation from FedEx." The company says it will focus on "revenue quality" (pricing discipline) and on matching costs to lower demand.
The June 25, 2026 earnings release gave guidance for the June–December 2026 transition period:
Revenue growth of 4%–6% vs. $5.1B in the same seven months of 2025
Operating income of $475M–$515M (vs. $394M), or $605M–$645M adjusted
Operating margin of 9.0%–9.5% (adjusted 11.5%–12.0%)
Interest expense of about $135M and a tax rate of about 26%
Diluted EPS of $1.75–$1.95 before pension accounting adjustments ($2.40–$2.60 excluding spin-off costs), on 149.5M shares
Our view: The guidance assumes margins improve even though management expects demand to stay soft. That makes cost control and the end of spin-off costs the key variables to watch, not a volume recovery. The first standalone 10-Q (July–September 2026) will be the first clean test. It will show whether shipments per day have stopped falling, whether revenue per hundredweight rises once fuel is stripped out, and how much standalone overhead replaces the old FedEx allocations. The company says it expects to start paying a regular dividend "in the foreseeable future." With $4.3B of new debt and leverage covenants, that dividend competes with paying down debt.