Stocks of Fedex Rally by 8% After the Company Plans to Spin Off Its Freight Business

FedEx Corp. announced on Thursday evening plans to spin off its FedEx Freight division, creating two independent publicly traded companies. The decision is part of the shipping giant’s strategy to enhance value for its investors.

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The announcement led to a rise in FedEx shares during after-hours trading, easing some concerns over the company’s reduced guidance for the year, which it attributed to “continued uncertainty” in demand despite a busy holiday season thus far.

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The separation of the FedEx Freight unit was first mentioned by the company over the summer, with a promise to make a final decision by the end of the year. Analysts had widely anticipated the move, which has been a significant factor in FedEx’s stock outperforming its competitor, United Parcel Service Inc. (UPS), in 2024.

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While UPS shares have fallen 22% this year, FedEx’s stock has risen by 9%. The spinoff announcement pushed FedEx shares up by over 8% in after-hours trading on Thursday. During regular trading hours, the stock had gained 1%.

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Once independent, FedEx Freight will become the largest less-than-truckload (LTL) transportation company in North America by revenue. The LTL model involves multiple large shipments from different businesses being transported together on a single truck, as opposed to dedicating one truck per shipment.

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Analysts at Raymond James noted that FedEx Freight has historically been undervalued within the company’s portfolio. They stated that the separation could drive long-term benefits for the division by increasing focus on its operations and fostering improved service quality and pricing strategies.

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FedEx Freight accounts for a little over 10% of the company’s total revenue, which is primarily dominated by its Express business. FedEx also operates ground parcel delivery services and retail stores, formerly known as Kinko’s, that offer copying and office services.

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Stifel analysts predicted a “likely significant” upside for FedEx’s stock following the spinoff, estimating that it could add approximately $100 per share. They described the decision as a major industry development, though they do not anticipate significant short-term changes in the competitive dynamics of the market.

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FedEx expects to finalize the spinoff within the next 18 months.

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In a statement, FedEx said the separation would allow for more customized operational strategies, tailored investments, and targeted capital allocation to address the distinct needs of the global parcel and LTL markets.

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Raj Subramaniam, FedEx’s Chief Executive, emphasized that the timing was appropriate to proceed with the separation, citing the “unique dynamics” of the LTL market as a driving factor.

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Separately, FedEx reported its fiscal second-quarter results on Thursday. The company posted an adjusted profit of $4.05 per share on $22 billion in revenue, slightly lower than the $22.2 billion in sales it reported for the same period last year. These results aligned with analysts’ expectations, according to TradeAlgo.

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The Express division delivered growth in operating profit despite facing several challenges, including weak domestic demand in the U.S. and the expiration of its contract with the U.S. Postal Service.

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However, the FedEx Freight segment underperformed, reporting lower-than-expected revenue and profit. The company attributed this weakness to “sustained softness in U.S. industrial production,” which continues to weigh on LTL demand.

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FedEx revised its guidance for fiscal 2025, projecting flat revenue compared to an earlier forecast of a low single-digit percentage increase. The company now expects earnings per share to range between $16.45 and $17.45, down from its previous guidance of $17.90 to $18.90 provided in September.

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The spinoff marks a strategic shift for FedEx as it seeks to unlock value in its freight division and streamline its operations. Analysts see the move as a way to highlight the potential of the FedEx Freight business, which may have been overshadowed by the company’s larger Express and Ground divisions.

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In the long run, the separation could enhance operational focus and enable both FedEx and the newly formed FedEx Freight to better address their respective markets. However, the immediate challenges in the freight business, including weaker industrial production and subdued demand, suggest that the new company will need to navigate a tough environment as it establishes itself.

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For FedEx, the spinoff could allow the company to concentrate more resources on its global parcel operations, where it faces ongoing competition from UPS and other logistics providers. The streamlined structure may also improve FedEx’s ability to respond to market trends and allocate capital efficiently.

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While near-term headwinds remain, the decision to separate the freight business positions FedEx to unlock additional value for its shareholders over the long term. Market participants will be watching closely as the company progresses toward completing the spinoff within the next year and a half.

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