FedEx is conducting a strategic analysis of the company’s less-than-truckload segment and its relative value to the company, suggesting that FedEx Freight could be sold or spun off so the company can focus on its parcel and logistics business.
“With the recent completion of the FY 2025 planning process, we have turned our focus to the next phase of our long-term stockholder value creation plans. As a part of this work, our management team and the board of directors, along with outside advisers, are conducting an assessment of the role of FedEx Freight in our portfolio structure and potential steps to further unlock sustainable shareholder value,” CEO and President Raj Subramaniam said Tuesday on a call with analysts following the announcement of fourth-quarter results. “We’re committed to completing this review thoroughly and deliberately by the end of the calendar year.”
FedEx Freight is the corporation’s (NYSE: FDX) best-performing segment, with operating margins of 20% each of the past two years compared with margins of 11.8% for Ground and 2% for Express in 2023. During the fourth quarter, operating income increased by $58 million, as focus on revenue quality and cost management overcame the soft demand environment and drove higher yields.
FedEx Freight is the largest LTL carrier in the nation and is extremely efficient, with an operating ratio of 80% – second only to Old Dominion Freight Line (ODFL).
Satish Jindel, the founder and president of parcel transport consultancy ShipMatrix Inc., predicted in an interview that FedEx will spin off the Freight subsidiary.
The best option for maximizing shareholder value is creating an independent company with FedEx Freight, the largest LTL carrier in the nation, and issuing shares to current investors, he argued.
“You will have the greater shareholder return with a spinoff to the public market, not a sale,” because the next-largest carriers – ODFL and Saia – don’t need FedEx Freight and it is too expensive for anyone else to buy, he said.
Jindel urged FedEx founder Fred Smith, in an open letter nearly three years ago, to make Freight a stand-alone company because – by his estimate – it had a market capitalization of $34 billion compared to $61 billion for the entire FedEx enterprise.
FedEx Freight’s revenue has increased 16.5% since then to $9.1 billion, and its estimated valuation is now more than $50 billion, so a spinoff is even more justified now, Jindel insisted.
“No carrier is big enough to be able to buy FedEx Freight,” he said, knocking down speculation that XPO, another large LTL carrier, would bid for the FedEx unit. “And you can’t integrate two carriers” because LTL networks are so asset-intensive there would be huge redundancy in terminals.
“The public markets don’t have enough choices. That’s why you have more people buying the stocks of Saia, ODFL and XPO. The moment they have a choice of a fourth carrier,” they will invest there, Jindel told FreightWaves.
Another major LTL player is ABF Freight System, but its expansion into household goods movement and third-party logistics means LTL is less than half its business now.
Stifel analyst Bruce Chan also said a spinoff of Freight is the most likely outcome. “The division has quietly grown from the family outcast to the most profitable division in the portfolio, and with peer valuations at nearly double that of FedEx, such a move makes sense to us,” he wrote in a research paper.
Markets looked favorably on the prospect of a Freight deal and improved profit figures. FedEx’s stock price was up about 14.5% to $293 in midday trading from Tuesday’s close.
BMO Capital Markets analyst Fadi Chamoun said in a client note that FedEx shares could be valued at $310 to $338 per share if Freight is divested during the current fiscal year, with the value shooting as high as $408 per share in fiscal year 2026 if there is a deal.
FedEx rival UPS (NYSE: UPS) in 2021 sold its LTL unit to Canada-based trucking company TFI International.
In related news, FedEx is in the process of consolidating Express and Ground into one integrated air and ground operating network. Subramaniam said future segment results will be reported under FedEx Corp. FedEx Freight will now include FedEx Custom Critical, a premium service that previously was included in the Express organization.
(Correction: An earlier version of this story incorrectly inflated FedEx Freight’s revenues. They were $9.1 billion in the prior fiscal year, not $19 billion.)
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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FAQs
FedEx Freight will continue to provide less-than-truckload freight transportation services as a stand-alone company under Federal Express Corporation. Raj Subramaniam will serve as President and CEO of the combined organization.
Is FedEx looking to sell FedEx Freight? ›
FedEx is considering a sale of its FedEx Freight road freight business after delivering stable annual results. Whilst the just released annual results were hardly spectacular, FedEx saw net income rise by $360m to $4.33bn despite revenue edging down by 2.7%.
Is FedEx Freight being sold off? ›
FedEx is reportedly expected to spin off its Freight unit after it conducts an assessment of the future of that business unit.
Is FedEx selling FedEx Freight division? ›
FedEx is conducting a strategic analysis of the company's less-than-truckload segment and its relative value to the company, suggesting that FedEx Freight could be sold or spun off so the company can focus on its parcel and logistics business.
What is FedEx's rumor for 2024? ›
FedEx will consolidate all its operating companies into a single organization, effective June 2024. FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services.
Why is FedEx Freight closing terminals? ›
“As the less-than-truckload industry evolves, at FedEx, we are continuing to adapt our freight network to meet forecasted demand and make adjustments that align with the evolving needs of the business,” a FedEx spokesperson told FreightWaves.
Is XPO buying FedEx? ›
“No carrier is big enough to be able to buy FedEx Freight,” he said, knocking down speculation that XPO, another large LTL carrier, would bid for the FedEx unit. “And you can't integrate two carriers” because LTL networks are so asset-intensive there would be huge redundancy in terminals.
Is FedEx Freight laying off employees? ›
The Memphis, Tennessee-based company said it is cutting jobs and consolidating some teams to streamline its workforce and reduce structural costs. FedEx anticipates it will lay off 1,700 to 2,000 employees, reportedly costing the company between $250 million and $375 million through the 2026 fiscal year.
What is top pay for FedEx Freight? ›
Fedex Freight Driver Salary in California
| Annual Salary | Monthly Pay |
|---|
| Top Earners | $135,699 | $11,308 |
| 75th Percentile | $57,700 | $4,808 |
| Average | $56,948 | $4,745 |
| 25th Percentile | $39,500 | $3,291 |
Key Takeaways. FedEx warned of slowing demand because of "volatile macroeconomic conditions," and shares sank. The package delivery giant missed earnings and revenue estimates on a drop in volume, lower fuel surcharges, reduced demand surcharges, and a shift toward less profitable services.
Shares of FedEx Corporation FDX declined 3.32% on Apr 1 to $280.13 per share from $289.74 on Mar 28. This downside was mainly due to the non-renewal of the air-cargo contract with United States Postal Service or USPS. The current contract with FedEx will expire on Sep 29, 2024.
What is the future of FedEx? ›
For fiscal 2025, FedEx expects to repurchase $2.5 billion of FedEx common stock, including $1.0 billion during the first fiscal quarter, and previously announced a 10% increase ($0.48 per share) in the annual dividend rate on its common stock to $5.52 per share.
What is going to happen to FedEx Freight? ›
FedEx Freight operating results increased due to higher yield and effective cost management. FedEx Freight has announced plans to further optimize its operations and match capacity with demand through the planned permanent closure of seven facilities.
Is FedEx Freight and ground merging? ›
The transition will bring FedEx's (NYSE: FDX) air, ground parcel and FedEx Services businesses under one umbrella, effective June 1, 2024. FedEx Freight, the company's LTL operation, will continue to operate as a stand-alone entity within the new corporation. FedEx Corp.
What freight company did FedEx buy? ›
2016. FedEx Corp. acquires TNT Express, one of the world's largest express delivery companies, for €4.4 billion. Each day, TNT Express delivers nearly one million consignments of documents, parcels and freight through its road and air delivery services in Europe, the Middle East, Africa, Asia-Pacific and the Americas.
What are the future plans for FedEx? ›
This phased transition, with full implementation expected in June 2024, will ultimately bring FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network under the respected FedEx ...
Is FedEx struggling financially? ›
FedEx maintained its full fiscal-year outlook of "low-single-digit percentage decline" in revenue and narrowed its earnings view to $17.25-$18.25 per share. In December 2023, FedEx predicted full 2024 earnings of $17-$18.50 per share.
