MEMPHIS, Tennessee – FedEx Freight, the less-than-truckload (LTL) division of FedEx, reported a dramatic decline in second-quarter profits, highlighting the severe challenges facing the freight transportation industry amid weakening demand. However, the company continues to move forward with its planned spin-off, signaling strategic adjustments to navigate increasingly competitive market conditions.
Steep Profit Decline Reflects Market Weakness
Investor reports reveal that FedEx Freight's operating income plunged 71% to $90 million in the quarter ending November 30, down from $312 million during the same period last year. This performance fell significantly below market expectations, raising concerns about the division's future prospects.
While a one-time spin-off cost of $152 million directly impacted earnings, even adjusted operating income of $242 million showed a concerning 22% year-over-year decrease. FedEx executives attributed the downturn to persistent market softness across the LTL sector, exacerbated by global economic slowdowns, inflationary pressures, and reduced consumer spending.
The company has revised its fiscal 2026 revenue projections downward from "flat to slightly up" in September to "flat to slightly down" – a notable adjustment reflecting deteriorating market conditions. Quarterly revenues of $2.1 billion also fell short of last year's $2.2 billion performance.
Industry-Wide Challenges Intensify
FedEx Freight's struggles mirror broader industry trends, with multiple LTL carriers reporting declining shipment volumes and tonnage in November. Competitor Old Dominion Freight Line, for instance, recorded a 4.4% drop in daily revenue.
Intensifying competition has forced price reductions across the sector, squeezing profit margins. Meanwhile, fluctuating fuel prices continue to pressure operating costs, despite attempts to pass some expenses to customers through fuel surcharges.
"Given persistent LTL industry softness, we've lowered our second-half expectations," said FedEx CFO John Dietrich. The company now anticipates a $300 million reduction in adjusted operating income, triple the $100 million decline forecast in September.
Strategic Response: Spin-off on Track
FedEx Freight is implementing countermeasures, including expanding its sales force. Chief Customer Officer Brie Carere noted that over 85% of sales personnel positions have been filled, with full staffing expected by June 2024.
Concurrently, the planned spin-off remains on schedule for June 1, 2026. This strategic move aims to enhance operational efficiency, optimize resource allocation, and provide greater flexibility to respond to market dynamics. As an independent entity, FedEx Freight would gain autonomy to focus exclusively on LTL operations while facing heightened competitive pressures.
Uncertain Outlook with Emerging Opportunities
The LTL market faces continued uncertainty from macroeconomic headwinds, geopolitical risks, and potential supply chain disruptions. However, e-commerce growth, emerging market expansion, and technological innovation present new opportunities.
Analysts suggest operational refinement will prove critical for FedEx Freight's success post-spin-off. Potential strategies include network optimization, improved asset utilization, fuel efficiency programs, and enhanced customer relationship management.
Technological adoption – particularly artificial intelligence, big data analytics, and IoT solutions – could drive efficiency gains through smarter routing, predictive maintenance, and real-time shipment monitoring. Meanwhile, talent development and corporate culture initiatives may strengthen long-term competitiveness.
While significant challenges persist, FedEx Freight's strategic repositioning through the spin-off could position it to capitalize on future market recovery and evolving industry opportunities.