FedEx ( ) shares soared after the company announced it plans to spin off its freight division into a separate public company, a move that will advance CEO Raj Subramaniam’s push to simplify the parcel giant.
FedEx will separate the unit that handles larger loads over the next 18 months, as stated in a statement on Thursday (19). The independent division, FedEx Freight, will help improve “operational focus, accountability and agility,” the company said in a statement. FedEx Freight generated $9.4 billion last year, while the rest of the company brought in $78.3 billion in fiscal 2024.
Creating two separate companies will also unlock value for shareholders, FedEx said, by attracting “distinct shareholder bases.”
Investors are excited about the prospect of FedEx creating a new competitor to transportation companies Old Dominion Freight Line and XPO. Shares of these companies have soared in recent years as the growth of e-commerce has increased demand for transportation and logistics services. A divestiture could add $79 in value per share, Daiwa analyst Jairam Nathan said in a note.
FedEx shares rose as much as 13% in after-hours trading in New York. The stock had gained about 9% this year as of Thursday’s close, lagging the S&P 500 index’s roughly 23% gain.
The two companies will maintain commercial agreements and continue to work together. In June, FedEx said it was reviewing the freight business, fueling expectations that it could be spun off or sold. Goldman Sachs is serving as financial advisor to FedEx, while Skadden, Arps, Slate, Meagher & Flom is providing legal advice.
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Bloomberg Intelligence estimates that the freight unit has a market value of more than US$30 billion (around R$184 billion).
Weak demand
The widely anticipated transaction was announced as the company revised its full-year profit forecast, citing continued weakness in U.S. demand at its Express unit.
Adjusted earnings in fiscal 2025 will be $19 to $20 per share, below FedEx’s previous forecast of $20 to $21 per share, the company said in a separate release announcing second-quarter earnings which surpassed Wall Street estimates. The midpoint of the new range is roughly in line with the $19.48 average of analyst estimates compiled by Bloomberg.
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Second-quarter adjusted earnings were $4.05 per share, compared with the $3.98 average of analyst estimates compiled by Bloomberg. The company attributed the second-quarter profit surplus to continued savings from its efficiency initiative, which it said offset lower-than-expected freight revenue.
The grimmer outlook shows how FedEx continues to struggle with falling package demand, which has impacted the entire industry, as cash-strapped customers spend on services rather than products and opt for slower, cheaper delivery options in instead of more profitable express shipments.
The transportation industry is still trying to recover from a prolonged freight downturn caused by excess capacity that entered the market during the pandemic, when heightened consumer demand for deliveries caused rates to soar.
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Subramaniam is trying to strengthen the company to better handle weakening demand by combining the company’s Express unit, which ships packages by air, with its ground delivery network.
It is also trying to recoup lost business from the expiration of its contract with the U.S. Postal Service, which the company said represented a $500 million headwind in the second quarter. The agency shifted its air cargo to rival UPS to make up for lost volume, and FedEx reduced its daytime flight hours by 60%.
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