FedEx Announces Spin-off of Freight Business Amidst Weakening Demand and Strategic Restructuring
Memphis, TN – FedEx Corporation (NYSE: FDX) announced a significant strategic shift on December 19, 2024, revealing plans to spin off its less-than-truckload (LTL) freight business, FedEx Freight, into a separate publicly traded company. This decision follows a comprehensive portfolio review and comes as FedEx grapples with declining demand, particularly in its U.S. Express unit. The spin-off, expected to be completed within 18 months pending regulatory approvals, aims to unlock value for both entities by allowing each to focus on its core strengths and pursue independent growth strategies. This move reflects a broader trend within the logistics industry as companies adapt to evolving market dynamics and seek to optimize their operations for enhanced profitability.
The announcement coincided with FedEx’s second-quarter fiscal 2025 (2Q25) earnings report, which painted a picture of softening demand and reduced profitability. The company revised its full-year outlook, projecting flat revenue growth compared to previous expectations of a low single-digit increase. Diluted earnings per share (EPS) forecasts were also lowered, reflecting the challenging operating environment. FedEx cited macroeconomic headwinds, increased transportation and labor costs, and ongoing business optimization initiatives as factors contributing to the weaker performance. The spin-off of FedEx Freight is seen as a strategic response to these challenges, allowing the company to streamline its operations and focus on its core express delivery business.
The rationale behind the separation stems from the belief that FedEx Freight has been undervalued within the larger FedEx structure. By establishing it as a standalone entity, FedEx anticipates achieving a valuation more in line with its LTL competitors, such as Old Dominion Freight Line (ODFL). Analysts estimate the enterprise value of FedEx Freight to be between $30 billion and $35 billion within the next 18 months, highlighting the potential for significant value creation through the spin-off. This move also aligns with FedEx’s ongoing efforts to cut costs and consolidate its express and ground operations to better compete with rivals like UPS, XPO, and Saia.
The separation will enable both FedEx and FedEx Freight to operate with greater focus and agility. FedEx will continue to advance its DRIVE and Network 2.0 initiatives, aimed at achieving significant cost savings and optimizing its network efficiency. Meanwhile, FedEx Freight, as an independent entity with a strong balance sheet, will be positioned to invest in growth and pursue its own strategic objectives within the LTL market. While operating as separate companies, the two entities will maintain collaborative ties and leverage operational, commercial, and technological synergies to ensure seamless service and cost-effective solutions for customers.
The spin-off is expected to create two distinct investment profiles, attracting investors with different risk appetites and investment strategies. While FedEx will focus on its core express delivery business and related services, FedEx Freight will cater to investors interested in the LTL market, which presents unique growth opportunities. Both companies will benefit from strong balance sheets, providing flexibility for investments in innovation, expansion, and shareholder returns. The unified FedEx brand will continue to represent both businesses, ensuring continuity and reinforcing the company’s reputation for speed, reliability, and trust.
Looking ahead, FedEx remains committed to strengthening its balance sheet, reducing capital intensity, and increasing capital returns. The company’s share repurchase program continues, with plans to repurchase an additional $500 million of common stock in fiscal 2025. The spin-off of FedEx Freight represents a pivotal moment in the company’s history, marking a significant step towards streamlining its operations, sharpening its focus, and unlocking value for shareholders in the face of a dynamic and competitive market landscape. The move underscores FedEx’s commitment to adapting to evolving industry trends and positioning itself for long-term success in the global logistics arena. The company expects to provide further details on the separation process and timeline in the coming months.
