FedEx intends to separate its freight trucking business

fedex The company announced the long-awaited split of its freight trucking division on Thursday, as it restructures operations to focus on its core delivery business.

Shares jumped 8% in after-hours trading, adding $5 billion to FedEx's market cap.

Analysts believe the offering could unlock up to $20 billion in shareholder value, while paving the way for FedEx's management to focus on integrating the operations of its separate Express and Ground units to boost profits. They say FedEx Freight's assets have not been fully appreciated within FedEx and that separating its trucking business as a publicly owned entity would provide an opportunity to expand and improve its operations.

Faisal Hirsi, an analyst at Edward Jones, said shipping is one of FedEx's most profitable businesses. The company trades at a relatively discount compared to its competitors in the general trucking sector such as XPO and Old Dominion, which means making it an independent company will create value for investors, he said.

“We're encouraged that the company has listened to shareholder feedback and is pursuing this path,” Stevens analyst Daniel Embro said of the spinoff.

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. The unit's revenue fell 11% to $2.17 billion during the fiscal second quarter ended November 30.

FedEx Freight has lost some of the cost-conscious customers it acquired after rival Yellow Corp.'s bankruptcy, and business appears to have bottomed out during the latest quarter, executives said.

The after-hours rally in FedEx shares came despite its warning that 2025 revenue could be held back by a stubbornly challenging environment, with demand for faster, more profitable deliveries from commercial customers remaining weak.

As a result, 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 the upper bound on full-year adjusted operating income to between $20 and $21 per share from its previous range of $20 to $22 per share.

FedEx's adjusted earnings in 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 again warned that the loss of USPS, its largest customer, would create a $500 million headwind in the current fiscal year.

The company and competitors like United Parcel Service are in the midst of the U.S. holiday shipping season, when daily volumes can double.

Thanksgiving fell later than usual this year, shortening the time businesses have to deliver gifts to shoppers and inventory to retailers.

So far, December volumes are beating FedEx's expectations, and they spiked right after Cyber ​​Monday — the first business day after Thanksgiving, when many people make online purchases.

Carriers are still overloaded since the early coronavirus shipping boom, so experts say most holiday gifts should be delivered on time.