FedEx is conducting a strategic analysis of the company’s less-than-truckload segment and its relative value to the company, suggesting that FedEx Freight could be sold or spun off so the company can focus on its parcels and logistics business.
“With the final completion of the FY 2025 planning process, we have turned our focus to the next phase of our long-term shareholder value creation plans. As part of this work, our management team and board of directors, along with outside advisors, are conducting an assessment of FedEx Freight’s role in our portfolio structure and possible steps to further unlock sustainable shareholder value, CEO and President Raj Subramaniam said Tuesday on a call with analysts after announcing fourth-quarter results. “We are committed to completing this review thoroughly and intentionally by the end of the calendar year.”
FedEx Freight is the company’s (NYSE: FDX ) best-performing segment, with operating margins of 20% each of the past two years compared to margins of 11.8% for Ground and 2% for Express in 2023. During the fourth quarter, operating income increased by $58 million, as a focus on revenue quality and cost management overcame the soft demand environment and drove higher yields.
FedEx Freight is the nation’s largest LTL carrier and is extremely efficient, with an 80% operating ratio – second only to Old Dominion Freight Line (ODFL).
Satish Jindel, founder and president of parcel shipping consultancy ShipMatrix Inc., predicted in an interview that FedEx will spin off the freight subsidiary.
The best option for maximizing shareholder value is to create a standalone company with FedEx Freight, the nation’s largest LTL carrier, and issue stock to existing investors, he argued.
“You’re going to get the most shareholder return with a spinoff on the public market, not a sale,” because the next largest carriers — ODFL and Saia — don’t need FedEx Freight and it’s too expensive for someone else to buy it, he said.
Jindel asked FedEx founder Fred Smith in an open letter nearly three years ago to make Freight a stand-alone company because it had a market capitalization of $34 billion compared to $61 billion for the entire FedEx enterprise.
FedEx Freight’s revenue has nearly doubled since then to nearly $19 billion, and its market cap is now more than $50 billion, so a spinoff makes even more sense now.
“No carrier is big enough to buy FedEx Freight,” he said, shooting down speculation that XPO, another large LTL carrier, would bid for the FedEx unit. “And you can’t integrate two carriers” because the LTL networks are so intensive that there would be a lot of redundancy at the terminals.
“Public markets do not have enough choices. That’s why you have more people buying Saia, ODFL and XPO stocks. Once they have a choice of a fourth carrier, “they will invest there,” Jindel told FreightWaves.
Another major LTL player is ABF Freight System, but its expansion into moving household goods and third-party logistics means LTL is less than half its business now.
Stifel analyst Bruce Chan also said a Freight spinoff is the most likely outcome. “The division has quietly grown from family spin-off to the most profitable division in the portfolio and with peer valuations at nearly double that of FedEx, such a move makes sense to us,” he wrote in a research paper.
Markets saw the prospect of a commodity deal and improved earnings numbers as favorable. FedEx’s stock price rose about 14.5% to $293 in midday trading from Tuesday’s close.
BMO Capital Markets analyst Fadi Chamoun said in a client note that FedEx shares could be valued at between $310 and $338 per share if the goods are delivered during the current fiscal year, with a high of $408 per share in fiscal 2026 if there is an agreement.
FedEx rival UPS (NYSE: UPS ) in 2021 sold its LTL unit to Canada-based trucking company TFI International.
In related news, FedEx completed the consolidation of Express, Ground and Freight into an integrated air and ground operating network. Subramaniam said future results will be reported under Express and Freight, with Ground absorbed into the Express organization. FedEx Freight will now include FedEx Custom Critical, a premium service previously included in the Express organization.
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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