By Lisa Baertlein and Abhinav Parmar
(Reuters) -FedEx announced the much-anticipated spinoff of its freight trucking division on Thursday, as it restructures operations to focus on its core delivery business.
Shares jumped 8% in after-hours trading, adding $5 billion to FedEx (NYSE:FDX)’s market capitalization.
Analysts believe the spinoff could unlock up to $20 billion in shareholder value, while clearing the way for FedEx management to zero in on merging operations of its separate Express and Ground units to boost profits. They say FedEx Freight assets were not fully appreciated within FedEx and that spinning off the trucking business as a publicly-held entity will provide an opportunity to expand and improve its operations.
Freight is one of FedEx’s most profitable businesses, said Edward Jones analyst Faisal Hersi. The company trades at a relative discount to its publicly held trucking rivals like XPO and Old Dominion, meaning that making it an independent company will create value for investors, he said.
“We are encouraged that the company listened to shareholder feedback and is pursuing this route,” Stephens analyst Daniel Imbro said of the spinoff.
FedEx Freight is the largest U.S. provider of less-than-truckload services, which involve carrying multiple shipments from different customers on a single truck; the shipments are then routed through a network of service centers where they get transferred to other trucks with similar destinations. The unit’s revenue fell 11% to $2.17 billion during the fiscal second quarter ended Nov. 30.
Executives said FedEx Freight lost some cost-conscious customers that it had picked up after the bankruptcy of rival Yellow (OTC:YELLQ) Corp and that the business appeared to have bottomed during the most recent quarter.
The after-hours rally in FedEx shares came despite its warning that 2025 revenue could be held back by a stubbornly challenging environment, with demand for its fastest and most lucrative deliveries from business customers remaining weak.
As a result, Memphis-based FedEx lowered its profit outlook for the full year ending May 2025, calling for adjusted profit of $19 to $20 per share. In September, FedEx cut the top end of its full-year adjusted operating income to between $20 and $21 per share from its previous range of $20 to $22 per share.
FedEx second-quarter adjusted profit fell to $0.99 billion, or $4.05 per share, from $1.01 billion, or $3.99 per share, a year earlier. Nevertheless, the result from the latest quarter topped analysts’ average call for earnings of $3.90 per share, according to LSEG.
FedEx Freight turned in lower-than-expected revenue and profit during the latest quarter, due to continued weakness in the U.S. industrial segment that includes manufacturing, metals and chemicals. That was mostly offset by ongoing cost-cutting at the company, which is slashing overhead and working to improve efficiency.
The Express unit’s adjusted results improved during the quarter, helped by expense reductions and more international export volume, FedEx said. That was partly offset by higher wage and lease rates, weak U.S. package delivery demand and the expiration of the U.S. Postal Service contract for air transportation services on Sept. 29, 2024.
FedEx again warned that the loss of USPS, its largest customer, would create a $500 million headwind in the current fiscal year.
The company and rivals like United Parcel Service (NYSE:UPS) are in the throes of the U.S. holiday shipping season, when daily volumes can double.
Thanksgiving fell later than normal this year, shortening the time the companies have to deliver gifts to shoppers and inventory to retailers.
December volumes so far are ahead of FedEx’s forecasts and picked up right after Cyber Monday – the first work day after Thanksgiving, when many people make online purchases.
Carriers are still shouldered with excess capacity from the early COVID shipping boom, so experts say most holiday gifts should be delivered on time.
