11:12 AM EDT, 09/19/2025 (MT Newswires) -- FedEx's ( FDX ) freight business continues to be challenged by the current industrial environment, even as the parcel delivery giant reported better-than-expected fiscal first-quarter results amid express revenue gains, Morgan Stanley said in a client note emailed Friday.

The company late Thursday reported adjusted earnings of $3.83 per share for the quarter ended August, up from $3.60 a year earlier, while overall revenue rose 3% to $22.2 billion. Both metrics topped Wall Street's consensus.

Revenue in the freight segment retreated 3% on an annual basis, weighed down by persistent weakness in the industrial economy and excess capacity in the truckload market, according to Morgan Stanley.

"Consistent with the industry trends that we have seen in recent quarters, revenue at freight remain pressured," Chief Executive Raj Subramaniam said during a late Thursday earnings call, according to a FactSet transcript. "That said, despite the prolonged weakness in the industrial economy, the (less-than-truckload) market remains rational, and we are well positioned with our disciplined approach to strategic growth."

In December, FedEx ( FDX ) announced plans to spin off its freight operations into a separate publicly listed company. That plan is expected to be executed by June 2026, FedEx ( FDX ) said late Thursday.

The express segment logged revenue growth of 4% year over year, reflecting higher US domestic package volumes, increased priority package yields, as well as cost cuts, Morgan Stanley wrote in its note. This was partially offset by factors including higher wages and purchased transportation rates.

For fiscal 2026, FedEx ( FDX ) said it expects adjusted EPS to come in between $17.20 and $19, excluding business optimization costs, retirement plan adjustments and the planned separation of its freight division. Revenue growth is pegged at 4% to 6%. The current consensus on FactSet is for adjusted EPS of $18.32 and revenue of $90.6 billion.

The high end of the full-year revenue guidance assumes favorable domestic trends and international export pressures to continue, while the lower end reflects additional demand headwinds, according to Morgan Stanley.

FedEx ( FDX ) Chief Financial Officer John Dietrich told analysts that the company anticipates sequential EPS improvement in the ongoing quarter. Operating margins within the express division are projected to "maintain or improve," while the group forecasts the annual adjusted margin decline at FedEx Freight to "begin moderating sequentially" in the second quarter, Dietrich said on the call.

Morgan Stanley has an underweight rating on FedEx's ( FDX ) stock.

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