FedEx Freight Holding Company, Inc. Q4 FY2026 earnings call

### Standalone Launch Milestone - Successfully completed the spinoff from FedEx Corp and debuted as a standalone publicly traded company on the New York Stock Exchange under ticker FDXF in Q4 FY2026, after months of rigorous planning that enabled a seamless transition with minimal customer disruption. - Safety remained the top priority through the transition, delivering record-low DOT preventable accident performance for full fiscal year 2026.

### Operational Performance - Shipment volumes were softer year over year, but showed sequential improvement quarter-over-quarter, with early signs of demand stabilization supported by improving manufacturing indicators and truckload capacity trends. - Revenue per shipment increased 11.5% year over year, driven by higher fuel prices and increased weight per shipment, the latter enabled by improved backhaul efficiency from tighter truckload capacity. - Key operational improvements were achieved: higher pickup reliability, better on-time delivery performance, improved trailer utilization, and a record low claims ratio for the quarter, on track for a full-year 2026 record.

### Commercial Updates - The standalone LTL-focused sales force is now fully staffed, integrated with frontline operations, and back in service centers working directly with drivers and customers face-to-face, driving deeper customer engagement and relationship building. - Dedicated LTL commercial expertise has been built out, with early progress in penetrating high-margin verticals including small and medium-sized businesses, retail, data centers, healthcare, and grocery.

### Technology Separation and Transformation - Completed full technology separation from FedEx Corp with more than 1,000 applications successfully migrated and 17,000 devices moved to the new standalone environment, with minimal disruption. - Launched the standalone FedExFreight.com website, which has already exceeded early adoption expectations with nearly 500,000 unique visits and ~250,000 online shipments scheduled post-launch. - Deployed a new purpose-built LTL freight pricing system on a modern, scalable stack, which already supports complex large customer contracts that the legacy system could not handle, with additional enhancements planned. - IT operations have shifted from separation to transformation, with core forward priorities including exiting transition service agreements (TSA) quickly to reduce cost and risk, responsible deployment of AI across the business to drive efficiency and improve customer experience, and continuing modernization of legacy systems to streamline the technology stack.

### Core Competitive Advantage: Dual Service Model - The single integrated network with two differentiated services (priority and economy) is a key structural advantage not easily replicated by competitors. - Priority service is ~40% faster than competitor offerings, serves shorter-haul, time-sensitive shipments, and supports premium pricing and stronger yields. - Economy service is a lower-cost offering that uses longer hauls and low-cost rail for more flexible shipments, with attractive economics. - Both services share the same network and assets, enabling capacity optimization, improved density, better lane balance management, higher asset utilization, and greater network resiliency during disruptions, without requiring incremental infrastructure investment.

As this call covers FedEx Freight's first quarter as a standalone company after spinning off from FedEx Corp, the firm reports overall consolidated results for the fourth quarter fiscal 2026, with no separate product segment financials provided. Overall consolidated performance: total revenue of $2.4 billion, an increase of 5% year over year, driven by higher fuel surcharges and increased weight per shipment, partially offset by lower shipment volumes. Adjusted operating income reached $363 million, with a 15% adjusted operating margin. For the dual service product lines: both priority and economy offerings generate healthy comparable margins. Priority service, which generates premium pricing and stronger yields, makes up a large portion of revenue, while economy operates with structurally lower costs and contributes the remainder of profitability. Approximately 50% of customers use both services.

- For the 2026 transition period (June 1 through December 31, 2026, the first seven months as a standalone company), management expects revenue growth of 4% to 6% year over year compared to the comparable 2025 period, which is modestly above prior Investor Day expectations, driven largely by the dynamic fuel environment. Approximately 60% of this revenue growth is expected to come in the four months ending September 30, 2026. - Volumes are expected to remain slightly below 2025 levels, but management forecasts sequential monthly improvement, with volume declines narrowing to flat by the end of the transition period with momentum heading into 2027. Most revenue growth is expected to come from yield improvements. - Adjusted operating income for the transition period is projected to be between $605 million and $645 million, implying an 11.8% adjusted operating margin at the midpoint. Yield is expected to add ~200 basis points to margin, driven primarily by fuel and secondarily by pricing improvements, and network efficiencies are expected to add an additional ~80 basis points. - Margin headwinds include: ~130 basis points from performance-based compensation, ~120 basis points (~$65 million) from transition service agreement costs, and ~30 basis points from lower volumes. Approximately 75% of transition period adjusted operating income is expected to come in the four months ending September 30, 2026, aligned with typical seasonality. - Management reaffirmed confidence in hitting the medium-term financial targets outlined at Investor Day, and will provide details on capital allocation and shareholder returns during the first standalone earnings call in October 2026. By mid-August 2026, the company expects to file its carve-out FY2026 Form 10-K and recast historical financial statements for 2024 and 2025.

- Transition service agreements (TSA) with former parent FedEx Corp will remain in place through the end of 2026 and into 2027, creating ongoing duplicative costs that act as a material headwind to margins during the transition period. - Demand remains softer than initially expected, with volumes still running below prior year levels, creating a modest volume-related margin headwind. - The technology transformation and TSA exit process carries implementation risk; accelerated exit requires careful execution to avoid operational disruption. - External industry risks include tightening truckload capacity and rising driver availability pressures, as well as inflationary cost pressures including higher purchase transport costs.

Q: What underlying demand assumptions are built into the 4-6% transition period revenue growth guidance? / A: Management notes volumes are slightly softer than initially anticipated, but expects sequential improvement. Volume declines of 4-6% in prior FY2026 quarters are expected to narrow to break-even by the end of 2026. Management expects the newly independent standalone sales force will drive momentum to close the volume gap heading into 2027, particularly in the underpenetrated SMB segment.

Q: What are your observations on industry capacity, driver availability, and competitive service challenges? How prepared is FedEx Freight for demand growth? / A: Management sees early signs of stabilizing and increasing demand across the industry, reflected in improving ISM manufacturing and truckload spot rate indicators. FedEx Freight is well prepared for growth: it has an internal CDL training program that develops drivers from existing dock staff, enough existing equipment to handle an additional 10,000 shipments without new purchases, and ~30% excess facility capacity.

Q: What is FedEx Freight's long-term capital allocation framework as a standalone company? / A: Capital allocation priorities are ordered as: 1) invest in high-return organic growth opportunities; 2) reduce inherited spin-off debt and maintain an investment-grade credit rating; 3) return capital to shareholders via dividends and share repurchases, with repurchases focused primarily on offsetting dilution; 4) evaluate selective strategic M&A only after addressing the first three priorities. Management expects to implement a dividend in late 2026 or early 2027, and launch a share repurchase program in 2027, both subject to board approval.

Q: What is the current status of the technology separation from FedEx, and what work remains? / A: All core separation milestones are complete, including the launch of the standalone website, new pricing system, streamlined account hierarchy, and new Salesforce platform, with all key applications and devices migrated successfully. Going forward, priorities are: 1) expedite exiting transition service agreements while modernizing platforms; 2) deploy AI tools to improve revenue quality, operational efficiency, and customer experience; 3) continue modernizing all remaining legacy systems, with additional progress expected over the next 12-18 months.

Q: Why haven't competitors replicated your dual service (priority/economy) single network model, and what makes it a sustainable advantage? / A: The model is complex and difficult to engineer, so most competitors have not attempted it. The model evolved organically from FedEx Freight's historical mergers of regional and long-haul carriers, and has been refined over decades. It lets customers keep both fast premium and lower-cost economy services in-house, reducing customer churn, and the company has long-standing favorable negotiated rail rates that support the economy offering's cost and service targets.