Key Takeaways
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FedEx Freight shares jumped 14% after its first standalone report beat profit estimates and raised its outlook.
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Excluding fuel surcharges, revenue per hundredweight rose just 0.3%.
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Old Dominion, XPO and Saia all raised base pricing 3.6% to 5.8% last quarter, leaving FedEx Freight room to catch up.
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The number to watch is December-quarter ex-fuel yield, which management expects to rise.
FedEx Freight ( FDXF:NYSE )stock soared 14% today after its first standalone report beat Wall Street's profit estimates and raised its outlook.
Its rivals have already shown what pricing power looks like: Old Dominion Freight Line ( ODFL:NASDAQ ), XPO ( XPO:NYSE )and Saia ( SAIA:NASDAQ )each reported bigger base price increases this week.
The renewals are coming
CEO John Smith said on Thursday's call:
"Since June 1, we have successfully renewed approximately 25% of our contractual portfolio and achieved our strongest renewal pricing performance in recent years."
It just isn't in the numbers yet. Revenue for the four months through September rose 9.2% to $3.3 billion. Here's its quarterly revenue over the past two years:
Fuel did nearly all of that work. Revenue per hundredweight rose 8.6%, but just 0.3% excluding fuel surcharges.
FedEx Freight now expects $695-715 million of adjusted operating income for the seven months through December, up from $605-645 million. CFO Marshall Witt credited "fuel tailwinds and slightly higher volume assumptions."
TIKR tracks 14 analysts on FedEx Freight. How many say "Buy"?
See the full breakdown of Buy, Hold, and Sell ratings on FedEx Freight, along with Wall Street's revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See FedEx Freight's Analyst Ratings
Its rivals are already there
In the September quarter, Old Dominion's base revenue per hundredweight rose 5.1%, even as its shipments per day fell 2.0%, and its operating income still jumped 25.4%. That's what holding price can do, even on less freight.
XPO's North American LTL yield excluding fuel rose 3.6%, and its shipments per day rose 5.8%. I suspect some of that freight came from FedEx Freight, so watch XPO's volume as those renewals roll through.
Saia's revenue per shipment excluding fuel rose 5.8%, against 1.1% at FedEx Freight. If FedEx Freight's increases stick, Saia either wins the shippers who balk or gets more room to raise its own rates.
The gap is the bull case
My take: Today's jump is a bet that FedEx Freight closes that gap, and it's a reasonable one. Only a quarter of its contracts have been repriced, management expects ex-fuel yield and volumes to rise in the December quarter, and a 6.9% general rate increase takes effect Jan. 8.
Here's its forward P/E since the June spin-off:
Of course, if diesel prices fall, that fuel tailwind goes too. The December-quarter report, due early next year, will show whether base pricing can carry the stock.
So what is FedEx Freight stock actually worth?
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