Written by Lisa Bertlin and Abhinav Parmar
(Reuters) – FedEx announced the long-awaited split of its freight trucking division on Thursday, restructuring its operations to focus on its core delivery business, sending shares of the package delivery giant soaring as much as 10% in after-hours trading.
Analysts believe the offering could unlock up to $20 billion in shareholder value, while paving the way for FedEx’s management to focus on consolidating operations of its separate Express and Ground units. They also say that FedEx Freight’s assets are not fully appreciated within FedEx and that separating that business 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 involves 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 achieved revenues of about $2.2 billion during the second quarter ending November 30.
The rise in FedEx shares came despite the company warning that it expects 2025 revenues to be hampered by a very challenging environment in which demand for faster, more profitable deliveries remains weak.
Memphis-based FedEx cut its earnings forecast for the full year ending May 2025, calling for adjusted earnings of $19 to $20 per share. In September, FedEx lowered its full-year adjusted operating income limit to between $20 and $21 per share from its previous range of $20 to $22 per share.
FedEx’s adjusted earnings for the second quarter fell to $0.99 billion, or $4.05 per share, from $1.01 billion, or $3.99 per share, a year earlier. However, the fourth-quarter result beat analysts’ average forecast for earnings of $3.90 per share, according to LSEG.
FedEx Freight had lower-than-expected revenue and profits during the latest quarter, due to continued weakness in the US industrial sector that includes manufacturing, metals and chemicals. This has been mostly offset by the company’s ongoing cost-cutting, which has reduced overhead and improved efficiency.
FedEx said adjusted results for its Express unit improved during the quarter, supported by expense reductions and increased international export volumes. This was partially offset by higher wage and rent rates, weak demand for package delivery in the United States, and the expiration of the US Postal Service contract for air transportation 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.
https://media.zenfs.com/en/reuters-finance.com/47dd1ce44fde6a301c18b6988a7642bc
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