Gokul Pisharody, Ananta Agarwal and Lisa Bertlein
(Reuters) – FedEx shares jumped 15% on Wednesday after the delivery giant reassured investors with an upbeat full-year profit forecast and said it was weighing whether to sell or spin off its freight business, which one analyst valued at $30 billion.
On Tuesday, the company forecast fiscal 2025 earnings of $20 to $22 per share, the midpoint of which was slightly above analysts’ estimates. CEO Raj Subramaniam said the company has benefited from the consolidation of its air and ground delivery divisions, job cuts, building closures and aircraft parking, and this will continue through this fiscal year ending May 2025.
A major restructuring of FedEx (NYSE:) is aimed at improving profitability, which has lagged that of its unionized rival. Combined package Service (NYSE:) and also helps fend off competition from fast-growing logistics service Amazon.com (NASDAQ:).
As the Memphis-headquartered company moves into the next phase of its strategic plan, it is overhauling its FedEx Freight trucking business, called LTL, or less than truckload. This business is the largest in North America. The company generated $2.3 billion in revenue in the most recent quarter and increased profits despite a persistent two-year decline in the U.S. freight market.
“The unit has quietly grown from family pariah to the most profitable unit in the portfolio, with comparable valuations nearly double that of FedEx,” Stifel analyst Bruce Chen said in a note to clients.
“We still have a lot of wood to cut, but we feel even better about being on this journey,” Chan said of FedEx’s corporate turnaround.
Jefferies analyst Stephanie Moore estimated the value of the cargo business at $30 billion.
“We expect significant upward revisions to estimates if FDX Freight trades as a standalone company or is sold,” BMO Capital Markets analyst Fadi Chamoun said in a note to clients.
UPS sold its freight business to TFI International (NYSE:) for $800 million in 2021, before the freight market downturn. UPS this week announced the sale of its freight brokerage company Coyote, which matches drivers with loads for RXO, for just over $1 billion — nearly $800,000 less than what it paid when it bought the business about a decade ago.
Fedx shares hit a session and 52-week high of $294.75 and were up 14% at midday Wednesday. Shares of rival United Parcel Service rose 2.6%. .
Through Tuesday’s trading, FedEx shares were up 10% in 12 months, compared with a 20% decline in UPS shares.
Morgan Stanley analyst Ravi Shanker said Wednesday’s stock gains may have been boosted by buying to cover bets that FedEx shares will fall after Tuesday’s earnings announcement.
He said it was likely that the review of the cargo business was “leading to undervaluation of the stock.”