Transports Weekly Chartbook

Research evidence excerpt

Transports Weekly Chartbook

lts and hold its inaugural earnings call on Thursday (6/25) after-market.

We view FDXF’s medium-term (~3yr, ’29 target) ~85% adj. OR target as conservative, as we see attainable run-rate above targets given leverage on

dedicated salesforce to drive volume/pricing, upgraded tech driving productivity, and cycle turn op. lev. FDXF announced an adjusted operating margin

guide of +300bps improvement to ~15% (~85% adj. OR) in the medium-term (~3yr, ’29 target) from ~12% today, which we view as conservative given its

scale as the largest LTL operator in North America, relative to long-term targets of sub-70 OR by ODFL and XPO and sub-80 by SAIA, which to some

extent appear priced-in at LTL peers. We see key leverage points that could drive potential upside to the guide in: (1) management and salesforce focus

anticipated to shorten the sales cycle, (2) upgraded technology expected to improve billing accuracy and other customer-facing experience to drive pricing

gains, (3) focus on higher-density/higher-margin SMB, Healthcare, Grocery, Data Center, and Energy verticals to drive mix improvement, and (4) operating

leverage on cycle turn with its 30% excess capacity. Other key medium-term guides include revenue growth CAGR of +4% to +6%, adjusted operating

income CAGR of +10% to +12% (coinciding with the adjusted operating margin growth target), and free cash flow of over $1 billion and FCF conversion of

over 90% on Capex as a percent of revenue of about 5%. See our note here.

Dry van truckload rates averaged $2.94/mi. last week, down -0.2% w-w but up +53.4% y-y. It has now averaged up +26.6% for 30 consecutive weeks. The

significant step-up is likely on CDL/ELP/ELD policy enforcement ramp as well as high diesel fuel prices.