FedEx (FDX) disclosed the spin-off of its FedEx Freight division into a separate publicly traded company. With this move, FDX aims to enhance shareholder value, improve financial performance, and increase operational flexibility for both businesses. Following the news, FDX stock gained about 9% in yesterday’s after-hours trading session.
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FedEx Freight, which specializes in the transportation of large and heavy shipments, generated $9.4 billion in revenue in Fiscal 2024. It must be noted that the spin-off is expected to occur within the next 18 months, allowing both companies to operate independently and focus on their respective strengths.
FedEx Separates Freight Unit amid Challenges
The company decided to separate its FedEx Freight unit after a thorough review of its position within the larger FedEx portfolio. This move comes amid a tough operating environment for FedEx.
The freight division is facing headwinds, such as weak demand in the U.S. industrial sector. At the same time, FedEx is witnessing sluggish demand for express shipping services, compounded by the loss of its contract with the U.S. Postal Service.
With this spin-off, FedEx will be able to focus on its core delivery business and achieve operational efficiencies.
Spin-Off Plans Come Alongside Mixed Q2 Results
FedEx disclosed spin-off plans alongside its mixed fiscal second quarter results. While the company surpassed earnings estimates, it lagged revenue expectations.
Importantly, FDX lowered its adjusted earnings per share outlook to a range of $19 to $20, down from previous expectations of $20 to $21. Also, it expects revenue growth in Fiscal 2025 to be flat compared to prior expectations of low-single-digit percentage growth.
Is FedEx a Buy, Sell, or Hold?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on FDX stock based on 14 Buys, eight Holds, and one Sell assigned in the past three months. At $309.58, the average FedEx price target implies a 12.22% upside potential. Shares of the company have gained 11.3% year-to-date.
