FedEx Corp. executives will separate their less-than-truckload operation, the country’s largest, into its own public company, a move analysts predicted this summer when the Memphis-based shipping giant said it would review the LTL group’s future.
Word of the plan to spin off FedEx Freight comes nearly six months after President and CEO Raj Subramaniam said his team had heard from “several investors and analysts” about the future of the $9 billion-plus LTL group. Investors have given significantly higher valuations of late to non-union LTL carriers like FedEx Freight than they have to transportation companies more generally.
FedEx ranks No. 1 on the FleetOwner 500: For-Hire list and operates more than 155,000 power units. The LTL group runs about 30,000 of those and handles an average of 92,000 shipments daily.
“This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market,” Subramaniam said in a statement. “Through this process, we will unlock value for our freight business and position FedEx to create even greater value for stockholders.”
Executives expect the separation to take up to 18 months, with the LTL business formally taking on the FedEx Freight name. The two resulting entities will sign commercial agreements to coordinate service to customers using both services and will “maintain the strategic advantages of cooperation on key commercial, operational, and technology initiatives.”
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Running point on the separation work is Claude Russ, a former CFO of FedEx Freight and currently the holding company’s enterprise vice president of finance. Another key player in the process will be Tom Connolly, FedEx’s new vice president of LTL sales, who has nearly 30 years of experience. Subramaniam said Connolly is leading work to grow his team by more than 300 people between now and the formal separation of FedEx Freight.
Officials pointed out that FedEx Freight has, over the past five years, grown its operating margins by more than 10 percentage points. In the recently concluded second quarter, however, the business fell short of expectations due to ongoing weakness in the industrial sector. Operating profits fell to $312 million from $491 million as average daily shipments fell 8% and revenue per shipment was down 4%. Chief Customer Officer Brie Carere told analysts on a Dec. 19 conference call that “year-over-year comparisons were challenging as some customers won last year from the Yellow bankruptcy have since left in search of lower prices.”
FedEx’s overall revenue for the quarter was $22.0 billion, down slightly from a year earlier, and executives have lowered their top-line forecast for the company’s fiscal 2025 to be flat from their previous expectation of a slight increase.
Shares of FedEx (Ticker: FDX) rose nearly 9% to $300 in after-hours trading December 19 on the heels of executives’ news. That’s their highest level in three months and grows the company’s market capitalization to more than $72 billion.
