FedEx has pulled off a coup - and the stock market is cheering. With the announcement to spin off its freight division in the next 18 months, the company is making a bold move. The news hit like a bomb and caused FedEx stock to jump a whopping 13% in after-hours trading. But what's behind this move?
The spin-off that shakes up the industry
FedEx Freight, which will be independently listed on the stock exchange in the future, with a revenue of $9.4 billion last year, is no lightweight. Bloomberg Intelligence estimates the company's value at over $30 billion - a formidable bloc that aims to assert itself as an independent player in the competitive freight market.
Why the whole thing? CEO Raj Subramaniam stated that the spinoff will help both companies to focus more on their respective core competencies. For FedEx, this means: focus on the core business and a much-needed boost to the stock, which is lagging behind the S&P 500.
The spin-off could create added value of up to 79 dollars per share, according to analyst Jairam Nathan from Daiwa. No wonder investors are excited.
The Big Winners: Investors and Competitors
The spinoff not only advances FedEx but also disrupts the freight transport market. Industry giants like Old Dominion Freight Line and XPO Inc. face a powerful rival with the independent FedEx Freight.
For investors, the prospect of a leaner, more agile FedEx is a reason for hope. After all, the logistics industry is grappling with a "freight recession" triggered by overcapacity during the pandemic. With this move, FedEx is positioning itself to emerge strengthened from the crisis.
Dark clouds over FedEx's core business
But there are also downsides. FedEx had to revise its earnings forecast for the fiscal year 2025 downwards – from $20 to $21 per share to $19 to $20. The reason: weak demand, especially in the US express business, and the loss of a lucrative contract with the US Postal Service, which now gives its air freight to competitor UPS.
The result? FedEx cuts flight hours by 60% and focuses on efficiency. The second-quarter results were better than expected, but analysts warn: Without significant recovery in the core business, the road remains bumpy.
What does this mean for the future?
The spin-off of FedEx Freight marks a turning point for the company. It is a calculated risk that could pay off – provided the new structures operate smoothly.
One thing is certain: FedEx is focusing on change to reposition itself in the shark tank of the logistics industry. Investors and analysts are eagerly watching the coming months. And while the industry continues to grapple with weak demand, this spin-off could become the blueprint for other logistics giants.
