FedEx Unleashes Major Restructuring Effort
In a move aimed at refocusing on its core delivery business, FedEx has announced the spinoff of its freight trucking division, sending shares soaring up to 10% in after-hours trading. This strategic decision is expected to unlock a massive $20 billion in shareholder value, allowing FedEx management to concentrate on merging operations of its separate Express and Ground units.
Unlocking Hidden Value
Analysts believe that FedEx Freight assets were undervalued within the company, and spinning off the business as an independent entity will provide an opportunity to expand and improve operations. As the largest U.S. provider of less-than-truckload services, FedEx Freight generated revenue of almost $2.2 billion during the second quarter ended November 30.
A Challenging Environment Ahead
Despite the excitement surrounding the spinoff, FedEx warned that it expects 2025 revenue to be impacted by a persistently challenging environment, where demand for its fastest and most lucrative deliveries remains weak. The company lowered its profit outlook for the full year ending May 2025, calling for adjusted profit of $19 to $20 per share.
Second-Quarter Results
FedEx’s second-quarter adjusted profit fell to $0.99 billion, or $4.05 per share, from $1.01 billion, or $3.99 per share, a year earlier. However, the result topped analysts’ average call for earnings of $3.90 per share. The Express unit’s adjusted results improved during the quarter, thanks to expense reductions and more international export volume.
Cost-Cutting Efforts Pay Off
FedEx Freight’s lower-than-expected revenue and profit during the latest quarter were largely offset by ongoing cost-cutting efforts, which include slashing overhead and improving efficiency. The company is also navigating the challenges of the U.S. holiday shipping season, where daily volumes can double.
A Season of Change
As the holiday season gets underway, FedEx and its rivals are working to deliver gifts to shoppers and inventory to retailers amidst a backdrop of excess capacity from the early COVID shipping boom. Despite the challenges, experts predict that most packages should be delivered on time.
Leave a Reply