FedEx Announces Spinoff of Freight Division

By Lisa Baertlein and Abhinav Parmar
(Reuters) – FedEx announced the much-anticipated spinoff of its freight trucking division on Thursday, restructuring its operations to focus on its core delivery business. This move sent 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 allowing FedEx (NYSE:FDX) management to concentrate on merging operations of its separate Express and Ground units. Analysts also indicated that FedEx Freight assets were not fully appreciated within the broader company, and spinning that business off will provide opportunities for expansion and improvement.

FedEx Freight is the largest provider of less-than-truckload services in the U.S., carrying multiple shipments from different customers on a single truck. It generated revenue of almost $2.2 billion during the second quarter ended Nov. 30.

The rally in FedEx shares came despite a warning that the company expects 2025 revenue to be hampered by a 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, projecting adjusted profit of $19 to $20 per share. In September, the company also cut the top end of its full-year adjusted operating income forecast to between $20 and $21 per share from a previous range of $20 to $22 per share.

For the second quarter, FedEx’s adjusted profit decreased to $0.99 billion, or $4.05 per share, down from $1.01 billion, or $3.99 per share, a year earlier. However, the latest results surpassed analysts' average expectation of earnings at $3.90 per share, according to LSEG.

FedEx Freight reported lower-than-expected revenue and profit during the latest quarter, primarily due to ongoing weakness in the U.S. industrial segment, which includes manufacturing, metals, and chemicals. This was mostly offset by the company's ongoing cost-cutting initiatives aimed at improving efficiency.

The Express unit showed improved adjusted results during the quarter, aided by expense reductions and increased international export volume. This 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 had previously warned that losing USPS, its largest customer, would result in a $500 million headwind this fiscal year.

The company and competitors like United Parcel Service (NYSE:UPS) are currently navigating the U.S. holiday shipping season, which can see daily volumes double. With Thanksgiving occurring later than normal this year, the window for delivering gifts to shoppers and inventory to retailers is shortened. Carriers are still dealing with excess capacity from the early COVID shipping boom, hence experts believe most packages should still be delivered on time.