FedEx shares fall 7% as margins shrink after freight spinoff

FedEx reported fourth-quarter revenue of $25 billion and adjusted earnings of $6.31 per share, above analysts’ estimates of $24 billion in revenue and $5.96 in adjusted EPS. The results included adjustments tied to the separation of FedEx Freight and changes in retirement-plan accounting.

For the full fiscal year ended in May, adjusted earnings were $20.24 per share, topping analysts’ estimates of $19.86 and exceeding the company’s prior guidance range. The company provided annual earnings guidance of $16.90 to $18.10 per share that covers only its delivery operations as it shifts reporting to a calendar-year basis from a May fiscal year-end.

The operating margin for the Federal Express segment fell to 7.7% from 8.4% a year earlier. Management attributed the decline to higher employee compensation, more spending on outsourced transportation and greater fuel costs. Investors highlighted the need for the remaining parcel delivery business to control costs and improve profitability now that the trucking unit is separate.

The FedEx Freight separation took effect on June 1 and narrows the company’s scope to parcel delivery. Because the guidance applies only to the delivery operations, analysts say comparable models have not yet been established. Morgan Stanley analysts noted, “It will be difficult to judge numbers for a few quarters given the noise, but focus will be on fundamental debates.” JP Morgan analysts warned the stock could face an overhang while the market sorts through the freight spinoff and the reporting-period change. Citi analysts pointed out that expectations were elevated heading into the report, and that confusion around the spinoff may have contributed to the market reaction.

Industry factors have added pressure. Both FedEx and rival UPS have seen lower shipment volumes after changes in U.S. trade policy and the removal of duty-free de minimis treatment for low-value e-commerce imports tied to retailers such as Shein and Temu. Rising fuel prices related to tensions in the Middle East have also squeezed margins for logistics companies.

The stock trades at about 14.7 times projected forward earnings over the next 12 months, slightly above UPS’s multiple of 14.05. Jefferies analyst Stephanie Moore said she expects delivery margins are near their lowest point and forecasted about 350 basis points of margin expansion by 2029 as technology and operational changes increase package density and efficiency; she initiated coverage with a buy rating.

Investors are focused on whether management can steady margins and demonstrate cost control as the company operates without FedEx Freight, and on how quickly analysts can build models that reflect the company’s new structure.