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By Lisa Baertlein and Abhinav Parmar
(Reuters) -FedEx on Thursday announced the long-awaited spinoff of its freight division as it restructures its operations to focus on its core delivery business, sending shares of the package delivery giant up as much as 10 % in out-of-hours operations. .
Analysts believe the spinoff could unlock up to $20 billion in value for shareholders, while clearing the way for FedEx management to focus on merging operations of its separate Express and Ground units. They also say that FedEx Freight’s assets were not fully appreciated within FedEx and that turning that business into an independent company will provide an opportunity to expand and improve it.
FedEx Freight is the largest American provider of less-than-truckload services, which involve transporting multiple shipments from different customers on a single truck; Shipments are then routed through a network of service centers where they are transferred to other trucks with similar destinations. It generated revenue of nearly $2.2 billion during the second quarter ended Nov. 30.
The rally in FedEx stock came despite the company’s warning that it expects 2025 revenue to be held back by a persistently challenging environment where demand for its faster, more lucrative deliveries remains weak.
Memphis-based FedEx lowered its earnings outlook for the full year ending May 2025, calling for an adjusted profit of $19 to $20 per share. In September, FedEx lowered 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’s second-quarter adjusted earnings fell to $990 million, or $4.05 per share, from $1.01 billion, or $3.99 per share, a year earlier. However, the result for the last quarter exceeded analysts’ average earnings forecast of $3.90 per share, according to LSEG.
FedEx Freight posted lower-than-expected revenue and profits last quarter due to continued weakness in the U.S. industrial segment that includes manufacturing, metals and chemicals. This was largely offset by continued cost reductions at the company, which is cutting overhead and working to improve efficiency.
The Express unit’s adjusted results improved during the quarter, helped by expense reductions and higher international export volumes, FedEx said. This was partially offset by higher wages and lease rates, weak demand for U.S. package delivery, and the expiration of the U.S. Postal Service’s contract for air freight services on September 29, 2024.
FedEx previously warned that the loss of USPS, its largest customer, would create a $500 million headwind in the current fiscal year.
