FedEx Stock Up On Freight Spin Off, Despite Weak Earnings, Outlook Cut

FedEx

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(RTTNews) - Shares of FedEx Corp. gained around 9 percent in the extended trading on the NYSE on Thursday and is currently trading 8 percent higher on the pre-market activity after the logistics major announced its plan to spin-off its Freight division, and additional $500 million share buyback. Meanwhile, the company trimmed its fiscal 2025 earnings and revenue view after reporting weak results in its second quarter.

Raj Subramaniam, FedEx Corp. president and chief executive officer, said, "This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market. This announcement is a testament to the strength of the business our team has built.... Through this process, we will unlock value for our Freight business."

The company further said it expects to repurchase an additional $500 million of common stock during fiscal 2025, for a buyback total of $2.5 billion. As of November 30, $3.1 billion remained available for repurchases under the 2024 authorization.

Freight Spin Off

FedEx said it has decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company. The decision was taken following the Board of Directors' comprehensive assessment of the role of FedEx Freight as part of its portfolio.

In the review, FedEx concluded that there are strategic opportunities that arise from separating Freight into an independent company and substantial benefits from the continuing commercial collaboration between them.

The separation, in a tax-efficient manner for FedEx stockholders, will be executed within the next 18 months.

FedEx Freight, with revenue of $9.4 billion in fiscal 2024, is the largest less-than-truckload or LTL services with the broadest network and fastest transit times in its industry.

FedEx said the company and its unit will continue to pursue their growth strategies following the separation. The move will allow for more customized operational execution along with more tailored investment and capital allocation strategies for both the global parcel and LTL markets.

In the separation, Goldman Sachs & Co. LLC is serving as the financial advisor.

FY25 Outlook

For fiscal 2025, FedEx now exects earnings per share of $16.45 to $17.45 before the MTM retirement plans accounting adjustments, compared to the prior forecast of $17.90 to $18.90 per share. Earnings per share, also excluding costs related to business optimization initiatives, are expected to be $19.00 to $20.00 per share, compared to the prior forecast of $20.00 to $21.00 per share.

Analysts on average expect the company to earn $19.75 per share, according to figures compiled by Thomson Reuters. Analysts' estimates typically exclude special items.

The company now expects full-year 2025 revenues to to be approximately flat year over year, compared to the prior forecast of a low single-digit percentage increase.

According to CFO John Dietrich, FedEx will continue to grow earnings this year despite the challenging demand environment, as the firm focuses on transforming operations and improving revenue quality.

Q2 Results

In its second quarter, FedEx's earnings decreased from last year and missed the Street estimates.

The company's earnings totaled $0.74 billion or $3.03 per share, compared to $0.90 billion or $3.55 per share a year ago. Adjusted earnings were $0.99 billion or $4.05 per share for the period, compared to prior year's $1.01 billion or $3.99 per share. Analysts had expected the company to earn $4.06 per share.

The company's revenue for the quarter fell 0.9 percent to $22.0 billion from $22.2 billion last year.

FedEx noted that its consolidated operating results were negatively affected by lower-than-expected FedEx Freight revenue and profit. Sustained weakness in U.S. industrial production continued to pressure less-than-truckload industry demand, it said. These impacted were mostly offset by cost reduction benefits at Federal Express from DRIVE program initiatives.

On the NYSE, FedEx shares in the extended trading gained 8.7 percent. In pre-market activity, the shares were gaining 8 percent to $297.94.

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