By Lisa Baertlein and Abhinav Parmar
(Reuters) -FedEx announced the much-anticipated spinoff of its freight trucking division on Thursday, as it restructures its operations to focus on its core delivery business, sending shares in the parcel delivery giant up as much as 10% in after-hours trading.
Analysts believe the spinoff could unlock up to $20 billion in shareholder value, while clearing the way for FedEx (NYSE:FDX) management to zero in on merging operations of its separate Express and Ground units. They also say FedEx Freight assets were not fully appreciated within FedEx and that spinning that business off as an independent company will provide an opportunity to expand and improve that business.
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. It generated revenue of almost $2.2 billion during the second quarter ended Nov. 30.
The rally in FedEx shares came despite a warning from the company that it expects 2025 revenue to be held back by a stubbornly challenging environment where demand for its fastest and most lucrative deliveries remains weak.
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 previously 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 they have to deliver gifts to shoppers and inventory to retailers. Carriers are still shouldered with excess capacity from the early COVID shipping boom, so experts say most packages should be delivered on time.