FedEx Corp. said late on Thursday (Friday AEDT) it plans to spin off its FedEx Freight unit and create two publicly traded standalone companies, as the company moves to “unlock significant value” for investors.
The shipping giant said it expects to commence the spin off process immediately, and the separation to be completed in the next 18 months.
Following the news, FedEx shares rallied more than 8% in extended trading, after closing the session 1% higher, despite the company lowering its guidance for the year.
Revenue from its freight business is around 10% of total FedEx sales, which is dominated by the company's Express business.
The company first flirted with the separation idea mid-year, with most analysts expecting the split, driving the stock to outperform in 2024 compared to its peers. FedEx shares are 9% higher for the year, while United Parcel Service (NYSE: UPS) is down 22% over the year.
"The separation will allow for more customised operational execution along with more tailored investment and capital allocation strategies to serve the unique and evolving needs of both the global parcel and (less-than-truckload) markets," FedEx said in a statement.
Chief Executive Raj Subramaniam said it was “the right time to pursue a separation” as the company responds to the "unique dynamics of the LTL market."
“As two industry-leading public companies, FedEx and FedEx Freight will continue to pursue their growth strategies. The separation will allow for more customised operational execution along with more tailored investment and capital allocation strategies to serve the unique and evolving needs of both the global parcel and LTL markets,” Subramaniam said.
A standalone FedEx Freight company would be the largest less-than-truckload (LTL) company in North America by revenue. LTL allows separate multiple shipments to be transported on one truck, rather than one shipment per truck.
Meanwhile, FedEx also reported fiscal second-quarter adjusted earnings per share of $4.05, beating estimates of $3.91 per share, and the company posted sales of US$22 billion, (A$35.26 billion) slightly missing estimates of $22.112 billion.
The company delivered operating profit growth in its express segment despite calling out various headwinds, like the continued weak U.S. domestic demand environment, and the expiration of FedEx's contract with the U.S. Postal Service.
However, lower-than-expected revenue and profit for FedEx Freight weighed on the results, driven by sustained weakness in U.S. industrial production, which continued to pressure demand for LTL.
FedEx said flat revenue for fiscal 2025 is expected, compared with a prior forecast of a low single-digit percentage increase, with EPS of between $16.45 and $17.45 expected, after previously forecasting EPS between $17.90 and $18.90 in September.
FedEx pioneered the express transportation industry more than 50 years ago and remains the industry leader today. In fiscal year 2024, FedEx revenue totalled $78.3 billion across its remaining business segments. The company provides a range of rapid, reliable, time-and day-definite delivery and related supply chain technology services to more than 220 countries and territories through an integrated air-ground express network.
Shares of FedEx Corporation (NYSE: FDX) are 8.1% higher in extended trading at the time of writing, after closing 1% higher to $275.88.
