FedEx just delivered its final earnings report with the freight business still under its roof. And what a send-off it was.
The shipping giant posted strong fiscal fourth-quarter results on Tuesday, beating Wall Street estimates on both revenue and earnings. The numbers—a 12% revenue jump to $24.8 billion and adjusted earnings per share of $6.10—were powered by the very unit that's about to walk out the door: FedEx Freight.
That's right. The trucking division that CEO Raj Subramaniam has been spinning off into a standalone company since January is the one that carried the quarter. Call it irony. Call it strategy. Either way, it worked.
The Freight That Keeps on Giving
FedEx Freight, the less-than-truckload (LTL) carrier that hauls pallets and parcels for businesses, saw revenue jump 18% year-over-year. Operating income soared 34%. The unit's operating margin hit 14.2%—a figure most trucking companies would kill for in a market that's been anything but kind.
The spin-off, expected to close in the first half of 2027, will create a publicly traded company called FedEx Freight Corp. Current investors will get shares in both entities. The move is designed to unlock value—Wall Street loves pure plays, and FedEx Freight has been hiding in plain sight inside a conglomerate.
But here's the rub: the freight business is cyclical. It booms when the economy hums and contracts when it stumbles. Right now, it's humming. The U.S. industrial economy is chugging along, e-commerce demand for heavy goods is up, and FedEx has been smart about pricing. The question is whether the spin-off will hit at the top of the cycle.
"This is the best quarter we've ever had from Freight," Subramaniam told analysts. "The timing of the separation reflects the strength of the business, not a desire to offload it."
Express and Ground: The Other Engines
It wasn't just Freight that delivered. FedEx Express, the air cargo arm that's been a drag in recent years, finally showed some muscle. Revenue was flat, but cost-cutting efforts—including route rationalization and fleet modernization—boosted margins. Ground, the residential delivery unit, grew revenue by 8%, driven by higher volumes from small and medium-sized shippers.
The overall picture: FedEx is executing. The company has been slashing costs, improving network efficiency, and raising prices without losing too many customers. The strategy is paying off. For the full fiscal year, FedEx reported revenue of $92.1 billion, up 7% from last year, and operating income of $6.8 billion, up 15%.
What the Spin-Off Means for Investors
Here's where it gets interesting. After the split, FedEx Corp. will consist of Express, Ground, and Services (the logistics and tech arm). FedEx Freight will be its own beast. Analysts are already licking their chops, valuing the standalone Freight at anywhere from $30 to $40 billion. That's roughly half of FedEx's current market cap.
But spin-offs come with risks. The new FedEx Freight will need its own board, its own debt rating, its own everything. And it will lose the cushion of being part of a giant. If the economy softens, there's no corporate parent to absorb the blow.
For current shareholders, the math is simple: you'll get shares in both companies. If the market prices them higher than the current combined value, you win. If not, you might wonder why you didn't sell before the split.
The Bigger Picture: A CEO's Bet on Focus
Subramaniam is doubling down on the idea that simpler is better. FedEx has spent decades acquiring and integrating—Kinko's, TNT Express, various trucking firms. Now it's breaking up. The logic: each business can attract its own investors, management can focus, and capital allocation gets sharper.
It's the same playbook that's worked for companies like Alcoa and eBay. But it's not guaranteed. The market has to agree that the sum of the parts is greater than the whole. Judging by the stock's 5% jump after earnings, investors are buying the story—for now.
The next few quarters will be telling. If FedEx Freight continues to print money, the spin-off will look like genius. If it stumbles, Subramaniam will face questions about why he didn't sell it instead.
The Bottom Line
FedEx's Q4 was a victory lap for a company in transition. The freight business is leaving with a bang, not a whimper. But the real test starts when the confetti settles and the new FedEx has to prove it can grow without its star player.
Investors should watch one metric: operating margin at Express. If that keeps improving, the post-split FedEx will be fine. If it stalls, the spin-off might be remembered as the moment the company lost its edge.
For now, Subramaniam gets to bask. The numbers are good. The story is compelling. And the freight? It's still rolling.
