FedEx Corporation Plans to Separate its FedEx Freight Division by Mid-2026
Situation Summary
On December 19, 2024, FedEx Corp. (NYSE: FDX, $278.66, Market Capitalization: $67.1 billion) revealed that its Board of Directors had concluded an in-depth examination of the role of FedEx Freight within its portfolio and decided to pursue a complete separation of FedEx Freight via capital markets, resulting in a new publicly traded company (for further details, check out spinoffresearch.com). Previously, FedEx had disclosed in June 2024 that it was considering various options for its LTL business, involving the transportation of numerous consignments from multiple customers on a single vehicle. The company plans to execute this planned separation via a capital markets transaction, ultimately resulting in two autonomous, publicly-listed, market-leading companies. This transaction is projected to be tax-free for U.S. federal income tax purposes. FedEx aims to initiate the separation process immediately, targeting execution within 18 months, contingent upon regulatory approval and other relevant conditions. Goldman Sachs & Co. LLC is acting as the financial advisor, and Skadden, Arps, Slate, Meagher & Flom LLP is serving as the legal counsel.
FedEx also revealed its 2Q25 financial results on December 19. The company updated its FY25 forecast, now predicting stagnant revenue compared to the previous expectation of a low single-digit percentage increase. The company anticipates Diluted EPS of $16.45 to $17.45 before MTM retirement plans accounting adjustments, in contrast to the earlier estimate of $17.90 to $18.90 per share; and $19.00 to $20.00 per share when excluding expenses related to business optimization initiatives, as opposed to the previous forecast of $20.00 to $21.00 per share.
Rationale Behind the Deal
The separation of the Freight business was announced as FedEx reduced its full-year profit projections, pointing out how FedEx's primary operations continue to struggle with weak demand, particularly at its Express unit within the U.S. Raj Subramaniam, President and CEO of FedEx Corp., acknowledged this as the ideal time to pursue separation while navigating the unique challenges of the LTL market. Analysts have long claimed that the Freight sector was undervalued within FedEx, which has been implementing cost-cutting measures and consolidating its express and ground operations to compete with rivals like Old Dominion (ODFL), United Parcel Service (UPS), XPO (XPO), and Saia (SAIA). The Company's stock has gained 10.5% year-to-date, underperforming the S&P 500 index by 16.8%. Following the separation of the Freight segment from the rest of the Company, the management expects to secure a premium valuation for its Freight business similar to its LTL competitors, particularly Old Dominion Freight Line (ODFL).
FedEx has identified strategic potential in isolating FedEx Freight as an independent company while maintaining collaborative ties. This separation is anticipated to improve operational focus, accountability, and agility, allowing both entities to seize profitable growth opportunities and tap into market value. FedEx will continue its initiatives like DRIVE, Network 2.0, and Tricolor. Distinct stock listings will provide unique investment profiles, strengthening the value proposition for each company. Both entities will maintain robust balance sheets, providing flexibility for growth investments and shareholder returns. Operational, commercial, and technological synergies will be conserved through agreements to ensure continuity, heighten speed, and decrease costs. The FedEx brand will remain unified, upholding its values of speed, reliability, and trust across both businesses, with the new company operating as FedEx Freight.
Post-separation, FedEx anticipates delivering substantial value for its shareholders through its transformation and strategic initiatives, centering on reducing the company's cost to serve while assisting customers in competing and triumphing with the world's most efficient and smart logistics ecosystem. The DRIVE initiatives are projected to generate $4 billion in cost savings by the end of FY25, while Network 2.0 targets savings of $2 billion by the end of the fiscal year 2027, strengthening profitability and fostering greater flexibility and efficiency across the network. FedEx remains dedicated to a solid balance sheet at both entities while continuing to reduce capital intensity and enhance capital returns. Post-spin-off, FedEx Freight will maintain its position as the largest LTL carrier with the broadest network and fastest transit times in its industry, already boasting a market share of around 17% and robust relationships with customers who appreciate choice, simplicity, and reliability. With a focus on safety, facility utilization, revenue quality, and operational efficiency, FedEx Freight has managed to preserve its leading market share position while increasing operating profit by nearly 2% on average per year over the past five years, delivering approximately 1,100 basis points of operating margin expansion during the same period. FedEx Freight is expected to benefit from a strong balance sheet that will enable it to maintain and extend its leadership position in the LTL market.
FedEx Corporation (FDX) was incorporated in Delaware on October 2, 1997, with the mission of serving as the parent holding company and offering strategic guidance to the FedEx portfolio of businesses. FedEx provides worldwide customers with a diverse portfolio of transportation, e-commerce, and business services, employing its flexible, efficient, and intelligent global network to provide integrated solutions. The company operated under two business segments: the Federal Express segment and the FedEx Freight segment.
FedEx led the express transportation industry way back in 1973, marking its 50th anniversary, and continues to dominate today. Offering a wide array of swift and dependable delivery solutions, FedEx serves more than 220 countries and territories globally, thanks to its extensive integrated air-ground network. On June 1, 2024, FedEx Ground and FedEx Services were united under FedEx. By June 7, 2024, the company had approximately 430,000 employees, 64,000 drop-off locations (including FedEx Office stores and FedEx OnSite locations, such as nearly 17,000 Walgreens, Dollar General, and Albertsons stores), nearly 700 aircraft, and over 175,000 motorized vehicles as part of its international network. FedEx works closely with around 6,000 independent small businesses that handle certain operational tasks. FedEx is also involved in international collaboration, cross-border enablement, and e-commerce logistics solutions.
FedEx Freight Division
FedEx Freight is a prominent provider of LTL freight services in North America. It caters to LTL shippers' requirements for speed, savings, and dependability with FedEx Freight Priority, FedEx Freight Economy, and FedEx Freight Direct. FedEx Freight Priority ensures rapid delivery to meet customers' supply chain needs, while FedEx Freight Economy provides cost savings at the expense of time. FedEx Freight Direct caters to the fast-growing e-commerce market for big-ticket and bulky products. Through its comprehensive U.S. network with industry-leading transit times, FedEx Freight serves every U.S. ZIP Code, including Alaska and Hawaii. FedEx Freight A.M. Delivery ensures freight delivery by 10:30 am within and between the U.S. and Canada. FedEx Freight Mexico offers cross-border and intra-Mexico LTL deliveries.
FedEx Freight's international operations are supported by the FedEx Freight International Services team, which monitors shipments, reviews customer documents, and follows up to prevent shipping delays at cross-border points. FedEx Freight offers various services to Mexico, Puerto Rico, and the U.S. Virgin Islands through alliances.
Through its numerous offerings, FedEx Freight matches customers' time-critical needs with industry-leading transit times. Using FedEx electronic solutions, LTL shippers can conveniently manage shipping and tracking for FedEx Freight and FedEx Express. These solutions make freight shipping more accessible and provide customers with easy access to their account information. Customers can also process domestic and cross-border LTL shipments through FedEx Ship Manager at fedex.com, FedEx Ship Manager Software, FedEx Web Services, FedEx API, and LTL Select.
FedEx Freight Direct serves the growing e-commerce market for big-ticket and bulky items. It offers four delivery service levels to meet customer needs, with basic and basic by appointment-to-the-door services and standard through-the-door service available to nearly 100% of the U.S. population. Premium through-the-door service with packaging removal is available to 90% of the continental U.S. population. The services include flexible delivery windows, end-to-end visibility, proactive notifications, and returns services with flexible pickup windows and label-less options.
As of June 7, 2024, the FedEx Freight segment operated nearly 30,000 motorized vehicles from its network of approximately 360 service centers and employed approximately 40,000 employees. Lance D. Moll serves as the President of FedEx Freight, which is headquartered in Memphis, Tennessee.
2Q25
For 2Q25, the company reported $21.97 billion in revenue, a 0.9% decrease YoY from $22.17 billion in the prior year. The revenue decline was primarily due to the decrease in volume and fuel surcharges. The revenue drop was attributed to slower growth in both the FedEx Express and Freight segments. Operating income was at $1.05 billion, a 17.6% decrease YoY, from $1.3 billion in 2Q24. Operating income margin decreased by 100 bps to 4.8%. The decline in operating income was driven by lower demand for domestic U.S. package and freight LTL services, influenced by macroeconomic factors, increased transportation and labor expenses, and higher business optimization costs. Net income for the period was $741 million, down 17.7% YoY from $900 million in 2Q24, and diluted EPS was $3.03 per share, down by 14.6% YoY.
First Half of 2025 (1H25)
The corporation netted revenues of $43.5 billion during this period, marking a 0.7% decrease Year over Year (YoY). This decline is attributed to a decrease in volume and fuel surcharges, which was somewhat counteracted by a boost in base yields at both transportation divisions. However, revenue was also adversely affected by an extra operating day absence in both divisions and less demand surcharges at Federal Express. The operating income for this period fell by 22.8% YoY to $2.1 billion, with an operating margin of 4.9%, down 140 basis points compared to the previous year. This decline was primarily driven by reduced demand for domestic U.S. package and freight LTL services, higher transportation and wage rates, and increased business optimization costs. The results were further affected by an extra operating day absence and less demand surcharges, but were partially offset by an increase in international export package services demand and better yields at Federal Express and FedEx Freight. Net income for this period amounted to $1.5 billion, a 22.4% YoY decrease compared to $1.98 billion in 1H24, with a corresponding 19.9% decrease in diluted Earnings Per Share (EPS).
Second Quarter of 2025 (2Q25)
The FedEx Express segment reported a slight increase in revenues, reaching $18.84 billion, an increase of 0.4% YoY. However, this growth was influenced by a decrease in priority package volume, the end of a contract with the U.S. Postal Service (USPS), lower fuel surcharges, as well as increased deferred package volume and improved base yields. Operating income for the period increased by 1.6% YoY to $1.05 billion, boasting an operating margin of 5.6%, up by 10 basis points. This increase was primarily due to improved base yields, partially offset by higher operating expenses.
First Half of 2025 (1H25)
The Federal Express segment reported revenues of $37.1 billion, representing a minimal 0.1% YoY decrease. This decline can be attributed to a decrease in priority package and U.S. freight volume, which was partially offset by increased deferred package volume and improved yields. Revenue was also adversely affected by an extra operating day absence and less demand surcharges. Operating income for this segment decreased by 14% YoY, reaching $2.0 billion, while the operating margin slipped to 5.4%, down by 90 basis points. This decline was primarily due to increased operating expenses and an extra operating day absence, but was partially offset by improved yields. The rise in operating expenses was due to increased wage and transportation rates, business optimization costs, and increased employee benefits, but was partially offset by lower fuel prices and continued savings from DRIVE initiatives, which reduced the permanent cost structure.
Second Quarter of 2025 (2Q25)
The FedEx Freight segment reported revenues of $2.2 billion, a significant 11.2% YoY decrease. This decline was primarily driven by decreased shipment volumes and yields. Operating income for the segment dropped substantially by 36.5% YoY to $312 million, influenced by the decline in revenue. The operating income margin also dropped by 570 basis points to 14.3%. The decrease in income was partially offset by reduced operating expenses, with a 22% YoY decline in combined fuel and transportation costs due to lower fuel prices and shipment volumes. Salaries and employee benefits expenses decreased by 4% YoY as a result of reduced staffing, although higher wage rates partially neutralized these savings. Depreciation expenses increased by 38% YoY, primarily due to the absence of a gain on facility sales recorded in 2Q24.
First Half of 2025 (1H25)
The FedEx Freight segment reported revenues of $4.5 billion for the first half of 2025, a 6.8% YoY decrease. This decrease was influenced by decreased shipment volumes, reduced yields, and an extra operating day absence compared to the previous year. Operating income for the segment dropped by 22.8% YoY to $751 million, with an operating margin of 16.7%, down by 340 basis points. The decline in operating income was primarily due to the revenue shortfall, but was somewhat mitigated by lower operating expenses. Combined fuel and transportation costs fell by 16% YoY, reflecting decreased shipment activity and lower fuel prices. Salaries and employee benefits expenses decreased by 2% YoY as a result of reduced staffing, although higher wage rates offset some of the reductions. Depreciation expenses increased by 17% YoY, primarily due to the previous year's gain on facility sales in 1H24.
FedEx and FedEx Express have revised their financial outlook for 2025, projecting approximately level revenue year-over-year, which is a downgrade from the initial projection of low single-digit growth. The predicted diluted earnings per share (EPS) range is now between $16.45 and $17.45, excluding retirement plan accounting adjustments, lower than the prior estimate of $17.90 to $18.90. Including business optimization costs adjustments, EPS is estimated to be $19.00 to $20.00, lower than the initial forecast of $20.00 to $21.00. The anticipated effective tax rate (ETR) is now around 24.0%, revised from 24.5%. Despite being unable to predict mark-to-market (MTM) adjustments due to potential significant impacts on consolidated financial results, FedEx confirmed permanent cost reductions of $2.2 billion from their DRIVE transformation program and capital spending of $5.2 billion focused on network optimization, fleet modernization, and automation. These projections are based on stable economic conditions, fuel price expectations, planned stock repurchases, and no new unfavorable geopolitical or economic developments.
Share Repurchase Program
FedEx executed $1 billion in share repurchases through open market and accelerated share repurchase transactions during the quarter. This led to the delivery of approximately 3.7 million shares and boosted 2Q results by $0.07 per diluted share. FedEx plans to repurchase an additional $500 million in common stock during FY25, bringing the total buyback to $2.5 billion. As of November 30, 2024, the remaining amount authorized for repurchases under the Company’s 2024 stock repurchase authorization was $3.1 billion. The company's cash reserves as of November 30, 2024, amounted to $5.0 billion.
Company Description
FedEx Corporation (Parent)
FedEx Corp. (NYSE: FDX) offers a diverse portfolio of transportation, e-commerce, and business services to customers worldwide. With an annual revenue of $87.7 billion, FedEx delivers integrated business solutions through its flexible, efficient, and intelligent global network. The company consistently ranks as one of the world’s most admired and trusted employers, providing employment to over 500,000 individuals who focus on safety, high ethical and professional standards, and customer and community needs. FedEx is committed to connecting people and possibilities responsibly and resourcefully, aiming to achieve carbon-neutral operations by 2040. FedEx established the express transportation industry more than 50 years ago and remains the industry leader today. In FY24, FedEx’s revenue totaled $78.3 billion across its remaining business segments. The company provides rapid, reliable, time- and day-definite delivery and related supply chain technology services to over 220 countries and territories through an integrated air ground express network.
FedEx Freight (Spin-Off)
FedEx Freight is a prominent North American provider of LTL freight services, offering solutions tailored to meet the needs of LTL shippers — FedEx Freight Priority, which prioritizes speed to meet customer supply chain needs; FedEx Freight Economy, which focuses on cost savings by trading time; and FedEx Freight Direct, a service designed for the growing e-commerce market for home and business delivery of large and bulky products. Through one extensive network of service centers and advanced information systems, FedEx Freight provides service to virtually every U.S. ZIP Code (including Alaska and Hawaii) with industry-leading transit times. Internationally, FedEx Freight Canada offers FedEx Freight Priority service to most points in Canada and FedEx Freight Priority and FedEx Freight Economy service between the U.S. and Canada. FedEx Freight Mexico provides FedEx Freight Priority to transport cross-border and intra-Mexico LTL shipments door-to-door and additional services to Mexico, Puerto Rico, and the U.S. Virgin Islands through alliances. The segment generated revenue of $9.4 billion in FY24.
Following the announced separation of FedEx Freight, the new company is expected to benefit from a premium valuation similar to LTL competitors, specifically Old Dominion Freight Line (ODFL). This spin-off research indicates that isolating FedEx Freight as an independent entity will improve operational focus, accountability, and agility, allowing both businesses to seize profitable growth opportunities.
In the context of FedEx's spin-off research, the company is considering various options for its LTL business, involving the transportation of numerous consignments from multiple customers on a single vehicle. This research may aim to identify the best course of action for maximizing the value of the Freight business and optimizing the overall company portfolio.
