FedEx Corp. shares soared after the company revealed plans to spin off its freight division into a publicly traded entity within 18 months, a move aimed at streamlining its operations. FedEx Freight, which generated $9.4 billion in revenue last year, will emerge as the largest player in the less-than-truckload (LTL) freight market, which consolidates shipments from multiple customers onto a single truck. Bloomberg Intelligence estimates the unit’s enterprise value at over $30 billion..
CEO Raj Subramaniam stated that the separation will enable both companies to “enhance their focus and competitiveness.” The spin-off is expected to strengthen FedEx’s core operations and capitalize on the rising valuations of standalone trucking firms, whose stocks have outperformed the broader market since 2019. FedEx’s stock, which has gained only 9% this year, jumped 13% in after-hours trading following the announcement.
Investors welcomed the prospect of a new competitor to trucking giants Old Dominion Freight Line and XPO Inc. Daiwa analyst Jairam Nathan suggested that the spin-off could add $79 per FedEx share in value. Despite the separation, the two companies will maintain commercial agreements and continue collaborating. Goldman Sachs is serving as FedEx’s financial adviser, with legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP.
Soft Demand and Profit Outlook
The announcement comes as FedEx lowered its full-year profit forecast, signaling ongoing struggles with weak demand in its core businesses, particularly in the Express division. Adjusted earnings for fiscal 2025 are now projected at $19 to $20 per share, down from the previous forecast of $20 to $21. The updated midpoint aligns with the $19.48 analyst consensus compiled by Bloomberg.
FedEx reported an adjusted second-quarter profit of $4.05 per share, slightly beating Wall Street’s $3.98 estimate, thanks to continued cost savings from its efficiency initiatives, which offset weaker-than-expected freight revenue.
Challenges in the Logistics Sector
FedEx’s revised outlook reflects broader industry pressures, as customers increasingly opt for slower, more affordable shipping over express services. CFO John Dietrich highlighted the impact of weaker industrial demand, which has hurt sales of FedEx’s most profitable services. The trucking industry is still recovering from a prolonged freight downturn, driven by excess capacity that flooded the market during the pandemic.
To mitigate losses, Subramaniam is integrating FedEx’s air-focused Express division with its Ground delivery network. The company is also navigating the fallout from the expiration of its US Postal Service contract, which shifted air cargo business to rival UPS. In response, FedEx cut daytime flight hours by 60% to offset the decline in shipping volume.
