FedEx Corp. shares saw an approximate 9% surge during late trading on the NYSE on Thursday and are currently trading 8% higher in pre-market dealings. This uptick follows the logistics giant's announcement of plans to spin off its Freight division, alongside an additional $500 million for share buybacks. However, the company also revised its fiscal 2025 earnings and revenue outlook downward after reporting underwhelming second-quarter results.
FedEx Corp.'s President and CEO, Raj Subramaniam, stated, "Now is the opportune moment for a separation as we adapt to the unique dynamics of the LTL market. This move highlights the strength of the enterprise our team has developed. By executing this plan, we will unlock significant value for our Freight business."
The company declared its intention to repurchase an additional $500 million in common stock during fiscal 2025, reaching a total buyback of $2.5 billion. By November 30, $3.1 billion was still available for repurchase under the 2024 authorization.
**Freight Division Spin-Off**
FedEx has opted to fully separate FedEx Freight via the capital markets, establishing a new publicly traded entity. This decision follows a comprehensive evaluation by the Board of Directors concerning FedEx Freight's role within its portfolio.
The review concluded that substantial strategic opportunities exist by forming an independent Freight entity while maintaining beneficial commercial collaboration. The separation will be tax-efficient for FedEx shareholders and is slated for completion within the next 18 months.
With a revenue of $9.4 billion in fiscal 2024, FedEx Freight leads the industry in less-than-truckload (LTL) services, boasting the most extensive network and fastest transit times. Both the company and its new unit will focus on their respective growth strategies post-separation, enabling more tailored operational execution and investment strategies for the global parcel and LTL markets.
Goldman Sachs & Co. LLC will act as the financial advisor for the separation.
**Fiscal Year 2025 Outlook**
FedEx has adjusted its fiscal 2025 earnings per share forecast to $16.45 to $17.45, excluding MTM retirement plans accounting adjustments, down from the previous estimate of $17.90 to $18.90. Earnings per share, excluding business optimization costs, are expected to range from $19.00 to $20.00, compared to the prior forecast of $20.00 to $21.00.
Analyst projections compiled by Thomson Reuters indicate an average earnings expectation of $19.75 per share, typically excluding special items.
The company now forecasts that full-year 2025 revenues will remain flat year-over-year, deviating from an earlier prediction of a slight single-digit increase.
CFO John Dietrich emphasized that FedEx intends to grow earnings this year despite challenging demand conditions, focusing on operational transformation and enhancing revenue quality.
**Second Quarter Results**
In its second quarter, FedEx reported earnings below the previous year and missed Wall Street expectations.
The company registered earnings of $0.74 billion or $3.03 per share, down from $0.90 billion or $3.55 per share the prior year. Adjusted earnings amounted to $0.99 billion or $4.05 per share, compared to $1.01 billion or $3.99 per share a year earlier. Analysts anticipated earnings of $4.06 per share.
Revenue for the quarter slipped 0.9% to $22.0 billion, down from $22.2 billion the previous year.
FedEx acknowledged that lower-than-expected FedEx Freight revenue and profit negatively impacted consolidated operating results. The persistent weakness in U.S. industrial production continued to weigh on LTL industry demand, though these were largely mitigated by cost reduction benefits from the Federal Express DRIVE program initiatives.
In extended NYSE trading, FedEx shares rose by 8.7%. During pre-market activity, the shares increased 8% to $297.94.
