By Lisa Baertlein and Abhinav Parmar
(Reuters) – FedEx announced the long-awaited result of its freight trucking division on Thursday, as it restructured its operations to focus on its core delivery business, sending shares in the parcel delivery giant up as much as 10% in after-hours trading . .
Analysts believe the outcome could unlock up to $20 billion in shareholder value, while clearing the way for FedEx management to zero in on merging operations of its separate Express and Ground units. They also say that FedEx Freight's assets were not fully valued within FedEx and that spinning off that business as an independent company will provide an opportunity to expand and improve that business.
FedEx Freight is the largest US provider of less-than-truckload services, which include transporting multiple shipments from different customers on a single truck; the loads are then routed through a network of service centers where they are transferred to other trucks with similar destinations. It generated revenue of nearly $2.2 billion during the second quarter ending November 30.
The rally in FedEx shares came despite a warning from the company that it expects 2025 revenue to be held back by a stubbornly challenging environment where demand for its fastest and most profitable deliveries remains weak.
Memphis-based FedEx lowered its profit forecast for the full year ending May 2025, calling for adjusted earnings of $19 to $20 a share. In September, FedEx cut the top end of its full-year adjusted operating income to between $20 and $21 per share from its previous range of $20 to $22 per share.
Adjusted profit in FedEx's second quarter fell to $0.99 billion, or $4.05 per share, from $1.01 billion, or $3.99 per share, a year earlier. Still, the latest quarter's result topped analysts' average call for earnings of $3.90 per share, according to LSEG.
FedEx Freight posted lower-than-expected revenue and profit in the latest quarter, due to continued weakness in the US industrial segment that includes manufacturing, metals and chemicals. That was largely offset by ongoing cost cutting in the company, which cuts overhead and works to improve efficiency.
The Express unit's adjusted results improved during the quarter, helped by cost reductions and increased international export volume, FedEx said. That was partially offset by higher wage and welfare rates, weak demand for package delivery in the US and the end of the US Postal Service's contract for air transport services on September 29, 2024.
FedEx previously warned that the loss of USPS, its largest customer, would create a $500 million headwind in the current fiscal year.