Two weeks ahead of its first quarter earnings call, FedEx officially unveiled its new financial reporting structure as part of its “One FedEx” consolidation plan .
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In a Tuesday filing with the Securities and Exchange Commission (SEC), the parcel shipping giant outlined its fiscal 2023 and 2024 financial performance as consolidated into two reportable business segments: Federal Express and less-than-truckload (LTL) freight transportation services provider FedEx Freight.
The switch had been a year in the making, and the reporting shift was first announced during FedEx’s fourth-quarter earnings call in June.
The two segments are cut down from the four units listed in prior quarterly reports. This comprised of FedEx Ground, FedEx Express and shipping services division FedEx Services.
FedEx says the FedEx Ground and FedEx Services units were officially merged into Federal Express (which dropped the FedEx Express branding) on June 1.
Another one of the company’s services, FedEx Custom Critical, will be included in the FedEx Freight unit to kick off the 2025 fiscal year, moving from the previous FedEx Express segment. The logistics provider offers that group of services to consumers seeking a premium shipping service for urgent, temperature-sensitive, valuable or hazardous shipments.
The streamlining serves beyond a cosmetic purpose, as the company has sought to cut $4 billion in costs by the end of fiscal 2025, with CEO Raj Subramaniam saying in the June earnings call that the goal is “firmly on track.” On top of that, FedEx seeks to save an additional $2 billion by 2027.
Additionally, the reporting consolidation forms the company more in line with chief rival UPS , which has its air, ground and services integrated within one network.
With FedEx Freight being the lone individual unit not integrated with the rest of the reportable business segments, the spotlight will be on the trucking branch.
It is still to be determined if the segment is going to be part of the Memphis, Tenn-based shipping firm’s long-term plans. FedEx is currently reviewing the LTL business , which is currently the largest in the U.S., operating nearly 30,000 motorized vehicles and approximately 360 service centers in North America as of June 7. That review is not expected to be completed until the end of the calendar year, according to Subramaniam.
Under the new reporting structure, both the Federal Express and FedEx Freight segments saw slight revenue declines in 2024, with the former declining 1.6 percent to $74.7 billion and the latter falling 6.5 percent to $9.4 billion.
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Operating profits at Federal Express jumped 14.9 percent to $4.8 billion under the new structure, while the freight segment declined 5.9 percent to $1.8 billion.
In a research note on Aug. 15, global investment firm AllianceBernstein wrote that a strategic review could “unlock significant value for shareholders” and that a standalone FedEx Freight would be in a better position to “close the margin gap” with its peers.
FedEx Freight’s operating margin was 21.2 percent in the fourth quarter, and 19.3 percent for the full year, which ended May 31.
The quarterly total is off the pace of the 28.1 percent reeled in by one of its chief competitors, Old Dominion . In the first six months of the trucking company’s fiscal year, operating margin was 27.3 percent.
In its North American LTL business, XPO is behind both FedEx and Old Dominion, with the company seeing a 16 percent operating margin in its second quarter and a 14.7 percent operating margin in the first half of 2024.
According to FedEx chief financial officer John Dietrich, the Federal Express segment is expected to be the larger driver of full-year 2025 adjusted income and margin improvement, further solidifying the idea that the company has an opportunity to focus on the core going forward.
Nevertheless, Dietrich said in the June call that FedEx Freight margins should be up “modestly” year over year due to both yield and volume growth.
Subramaniam seemed to acknowledge that FedEx Freight still had a possible future under the wider FedEx umbrella, noting in that call that the exiting of the air freight contract with the USPS could benefit the division. Aligning with the expiration of that deal, FedEx removed 31 aircraft from its fleet in the fourth quarter.
“Because of the reduction of costs to serve, it puts us in a position to profitably take share in the premium freight segment,” said Subramaniam.
FedEx reports first-quarter earnings on Thursday, Sept. 19.
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