Deal Overview
On December 19, 2024, FedEx Corp. (NYSE: FDX, $278.66, Market Capitalization: $67.1 billion) announced that its Board of Directors had concluded a comprehensive assessment of the role of FedEx Freight as part of its portfolio and has decided to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company (for more information, visit spinoffresearch.com). Earlier, FedEx disclosed in June 2024 that it was weighing options for the LTL business, which involves carrying multiple shipments from different customers on a single truck. The Company intends to execute the planned separation through a capital markets transaction, creating two independent, publicly listed, industry-leading companies. The transaction is expected to qualify as a tax-free separation for U.S. federal income tax purposes. The Company expects to commence the separation process immediately, with the intent to execute the transaction within 18 months, subject to regulatory and certain other conditions and final approval of the FedEx Board of Directors. Goldman Sachs & Co. LLC is serving as the financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal counsel.
The Company also announced its 2Q25 results on 12/19. The Company revised its FY25 outlook, where the Company expects flat revenue year over year, compared to the prior forecast of a low single-digit percentage increase. The Company expects Diluted EPS of $16.45 to $17.45 before the MTM retirement plans accounting adjustments compared to the prior forecast of $17.90 to $18.90 per share; and $19.00 to $20.00 per share after also excluding costs related to business optimization initiatives, compared to the prior forecast of $20.00 to $21.00 per share.
Deal Rationale
The spin-off of the Freight business was announced as FedEx trimmed its full year profit forecast, highlighting how FedEx’s main businesses continue to struggle with weak demand, especially in the U.S. at its Express unit. As per Raj Subramaniam, FedEx Corp. President and Chief Executive Officer, it is the right time to pursue a separation while the company navigates through the unique dynamics of the LTL market. Analysts have long argued that Freight was undervalued within FedEx, which has been slashing expenses and consolidating its express and ground operations to compete with delivery rivals like Old Dominion (ODFL), United Parcel Service (UPS), XPO (XPO), and Saia (SAIA). Year to date, the Company’s stock gained 10.5%, underperforming the S&P 500 index by 16.8%. With the spin-off of Freight from the rest of the Company, the management believes it will be able to achieve a premium valuation for its Freight business similar to its LTL competitors, most notably Old Dominion Freight Line (ODFL). FedEx Freight, according to Bloomberg Intelligence, is estimated to have an enterprise value of more than $30 billion within the next 18 months, while a leading brokerage firm estimates the value between $30 billion and $35 billion.
FedEx has identified strategic opportunities in separating FedEx Freight into an independent company while maintaining collaborative ties. The separation will enhance operational focus, accountability, and agility, enabling both entities to capture profitable growth and unlock market value. FedEx will continue advancing initiatives like DRIVE, Network 2.0, and Tricolor. Distinct public stock listings will provide unique investment profiles, strengthening the value proposition for each Company. Both entities will have strong balance sheets, allowing flexibility for growth investments and shareholder returns. Operational, commercial, and technological synergies will be preserved through agreements to ensure continuity, enhance speed, and reduce costs. The FedEx brand will remain unified, extending its values of speed, reliability, and trust across both businesses, with the new Company operating as FedEx Freight.
Post separation, FedEx expects to deliver significant value to its stockholders through its transformation and strategic initiatives, focused on reducing the Company’s cost to serve while helping customers compete and win with the world’s smartest and most efficient logistics ecosystem. The initiatives underway through DRIVE are expected to create $4 billion in cost savings by the end of FY25. In comparison, Network 2.0 is targeted to generate savings of $2 billion by the end of fiscal year 2027, supporting enhanced profitability and driving greater flexibility and efficiency across the network. FedEx remains committed to a continued strong balance sheet at both entities while continuing to reduce capital intensity and increase capital returns. Post spin-off, FedEx Freight will be the largest LTL carrier with the broadest network and fastest transit times in its industry. The Company already has a market share of around 17% and has deep and long-standing relationships with customers who value choice, simplicity, and reliability. With a focus on safety, facility utilization, revenue quality, and operational efficiency, FedEx Freight has maintained its leading market share position while increasing operating profit by nearly 2% on average per year over the last five years. The business has delivered approximately 1,100 basis points of operating margin expansion over the same period. FedEx Freight is expected to benefit from a strong balance sheet that will allow it to maintain and extend its leadership position in the LTL market.
FedEx Corporation (FDX) was incorporated in Delaware on October 2, 1997, to serve as the parent holding Company and provide strategic direction to the FedEx portfolio of companies. FedEx provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce, and business services, offering integrated business solutions utilizing its flexible, efficient, and intelligent global network. The Company operated under two business segments, the Federal Express segment and the FedEx Freight segment.
Federal Express Segment
Federal Express pioneered the express transportation industry over 50 years ago in 1973 and remains the industry leader today, providing a range of rapid, reliable, time- and day-definite delivery services to more than 220 countries and territories through an integrated air-ground express network. In connection with its one FedEx consolidation, on June 1, 2024, FedEx Ground and FedEx Services were merged into Federal Express. As of June 7, 2024, Federal Express employed approximately 430,000 employees and had approximately 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 in its global network. Federal Express contracts with approximately 6,000 independent small businesses to conduct certain linehaul and pickup-and-delivery operations. Federal Express also provides cross-border enablement and technology solutions and e-commerce transportation solutions.
FedEx Freight Segment
FedEx Freight is a leading North American provider of LTL freight services, offering choice, simplicity, and reliability to meet the needs of LTL shippers — FedEx Freight Priority, when speed is critical to meet a customer’s supply chain needs; FedEx Freight Economy, when a customer can trade time for cost savings; and FedEx Freight Direct, a service to meet the needs of the growing e-commerce market for delivery of big and bulky products to or through the door for residences and businesses. Through one comprehensive 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. FedEx Freight Priority has the fastest published transit times of any nationwide LTL service. Internationally, FedEx Freight Canada offers FedEx Freight Priority service, serving most points in Canada, as well as FedEx Freight Priority and FedEx Freight Economy service between the U.S. and Canada. Additionally, FedEx Freight A.M. Delivery offers freight delivery by 10:30 a.m. within and between the U.S. and Canada. FedEx Freight Mexico offers FedEx Freight Priority to deliver cross-border and intra-Mexico LTL shipments door-to-door. Customers receive support from the FedEx Freight International Services team to monitor LTL freight shipments, review customer paperwork, and follow up to avoid shipping delays when shipments are crossing borders. FedEx Freight provides additional services to Mexico, Puerto Rico, and the U.S. Virgin Islands via alliances.
Through its many service offerings, FedEx Freight can match customers’ time-critical needs with industry leading transit times. With the expansion of FedEx electronic solutions, LTL shippers have the convenience of a single shipping and tracking solution for FedEx Freight and Federal Express. These solutions make freight shipping easier and provide customers with easy access to their account information. Customers can also process domestic and cross-border LTL shipments to and from Canada and Mexico, as well as intra-Canada and -Mexico shipments, through FedEx Ship Manager at fedex.com, FedEx Ship Manager Software, FedEx Web Services, FedEx API, and LTL Select. FedEx Freight uses radio frequency identification technology and customized software to improve shipment visibility on its docks and enhance custodial control at the handling unit level.
FedEx Freight Direct addresses the growing e-commerce market for big and bulky products. It has 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 was operating nearly 30,000 motorized vehicles from a network of approximately 360 service centers and had approximately 40,000 employees. Lance D. Moll is the President of FedEx Freight, which is based in Memphis, Tennessee.
2Q25
For 2Q25, the Company recorded revenue of $21.97 billion, down by 0.9% YoY compared to $22.17 billion in the prior year. The decrease in revenue was primarily due to decline in volume and fuel surcharges. Revenue decline was due to lower revenue growth in both FedEx Express and Freight segments. Operating income was $1.05 billion, down 17.6% YoY, compared to $1.3 billion in 2Q24. Operating income margin was 4.8%, down by 100 bps. The decline in operating income was due to lower demand for U.S. domestic package and freight LTL services impacted by macroeconomic factors, increased purchased transportation and wage rates, and higher business optimization costs. Net income for the period was $741 million, down by 17.7% YoY compared to $900 million in 2Q24, and diluted EPS was $3.03 per share, down by 14.6% YoY.
1H25
For 1H25, the Company recorded revenues of $43.5 billion, down by 0.7% YoY, due to lower volume and fuel surcharges, partially offset by base yield improvement at both transportation segments. Additionally, 1H25 revenue was negatively affected by one fewer operating day at both of transportation segments and reduced demand surcharges at Federal Express. Operating income for the period was $2.1 billion, down by 22.8% YoY, with an operating margin of 4.9%, down by 140 bps compared to the prior year period. The decline in operating income was primarily due to lower demand for U.S. domestic package and freight LTL services driven by macroeconomic factors, increased purchased transportation and wage rates, and higher business optimization costs. The results were also negatively affected by one fewer operating day and lower demand surcharges. This was partially offset by increased demand for international export package services, base yield improvements at Federal Express and FedEx Freight, and continued cost savings related to DRIVE. Net income for the period was $1.5 billion, down by 22.4% YoY compared to $1.98 billion in 1H24, and diluted EPS was $6.24 per share, down by 19.9% YoY.
2Q25
For 2Q25, The FedEx Express segment recorded revenues of $18.84 billion, up slightly by 0.4% YoY. The lower growth in revenue was due to lower priority package volume, the expiration of the contract (Sep 29) with the U.S. Postal Service (USPS) to provide the USPS domestic transportation services, and reduced fuel surcharges, partially offset by increased deferred package volume and improved base yields. Operating income for the period was $1.05 billion, up by 1.6% YoY, with an operating margin of 5.6%, up by 10 bps. The increase in operating income was due to higher base yields, partially offset by increased operating expenses.
1H25
Federal Express segment revenue was $37.1 billion, down slightly by 0.1% YoY, due to lower priority package and U.S. freight volume, partially offset by increased deferred package volume and improved yields. 1H25 revenue was also negatively affected by one fewer operating day and reduced demand surcharges. Federal Express segment operating income was $2.0 billion, down by 14% YoY, with a margin of 5.4%, down by 90 bps. The decline in operating income was due to increased operating expenses and one fewer operating day, partially offset by higher base yields. The increase in operating expenses was due to increased wage and purchased transportation rates, business optimization costs, and increased employee benefits, partially offset by lower fuel prices and continued benefits from DRIVE initiatives that drove a reduction in permanent cost structure. These initiatives included the continued transformation of its structural network, improving the efficiency of information technology and back-office functions, optimizing operations in Europe, and increasing linehaul efficiencies.
2Q25
For 2Q25, FedEx Freight segment revenue was $2.2 billion, down by 11.2% YoY, primarily due to lower shipment volumes and reduced yields. Operating income for the segment dropped significantly by 36.5% YoY to $312 million, impacted by the decline in revenue. Operating income margin dropped by 570 bps to 14.3%. The decrease in income was partly offset by reduced operating expenses, with a 22% YoY decline in combined fuel and purchased transportation costs due to lower fuel prices and shipment volumes. Salaries and employee benefits expenses fell by 4% YoY because of reduced staffing to align with lower volumes, though higher wage rates partially offset these savings. Depreciation expenses increased by 38% YoY, primarily due to the absence of a gain on facility sales recorded in 2Q24.
1H25
For 1H25, FedEx Freight segment revenue was $4.5 billion, down by 6.8% YoY, impacted by lower shipment volumes, reduced yields, and one fewer operating day compared to the prior year. Operating income was $751 million, down by 22.8% YoY, and with an operating margin of 16.7%, down by 340 bps. The decline in operating income was primarily due to the revenue shortfall, partially mitigated by lower operating expenses. Combined fuel and purchased transportation costs fell by 16% YoY, reflecting decreased shipment activity and lower fuel prices. Salaries and employee benefits expenses were down 2% YoY due to reduced staffing levels, although higher wage rates offset some of the reductions. Depreciation expenses rose by 17% YoY, attributed to the prior-year gain on the sale of facilities in 1H24.
FY25
Outlook FedEx has revised its fiscal 2025 outlook, expecting approximately flat revenue YoY, a downgrade from its earlier forecast of low single-digit growth. Diluted EPS is now projected between $16.45 and $17.45, excluding mark-to-market (MTM) retirement plan accounting adjustments, down from the prior estimate of $17.90 to $18.90. Including adjustments for business optimization costs, EPS is forecasted at $19.00 to $20.00, also lower than the previous $20.00 to $21.00. The effective tax rate (ETR) is now expected to be around 24.0%, revised from 24.5%. While unable to forecast MTM adjustments due to potential material impacts on consolidated financial results, FedEx reaffirmed permanent cost reductions of $2.2 billion from the DRIVE transformation program and capital spending of $5.2 billion focused on network optimization, fleet modernization, and automation. These projections assume stable economic conditions, fuel price expectations, planned stock repurchases, and no new adverse geopolitical or economic developments.
Share Repurchase Program
FedEx completed $1 billion in share repurchases via open market and accelerated share repurchase transactions during the quarter. Approximately 3.7 million shares were delivered from the transactions, with the decrease in outstanding shares benefiting 2Q results by $0.07 per diluted share. The Company expects to repurchase an additional $500 million of common stock during FY25 for a buyback total of $2.5 billion. As of November 30, 2024, $3.1 billion remained available for repurchases under the Company’s 2024 stock repurchase authorization. Cash on hand as of November 30, 2024, was $5.0 billion.
Company Description
FedEx Corporation (Parent)
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With an annual revenue of $87.7 billion, the Company offers integrated business solutions utilizing its flexible, efficient, and intelligent global network. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires more than 500,000 employees to remain focused on safety, the highest ethical and professional standards, and the needs of their customers and communities. FedEx is committed to connecting people and possibilities around the world responsibly and resourcefully, with a goal to achieve carbon-neutral operations by 2040. FedEx pioneered 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 a range of rapid, reliable, time- and day-definite delivery and related supply chain technology services to more than 220 countries and territories through an integrated air ground express network.
FedEx Freight (Spin-Off)
FedEx Freight is a leading North American provider of LTL freight services, offering choice, simplicity, and reliability to meet the needs of LTL shippers — FedEx Freight Priority, when speed is critical to meet a customer’s supply chain needs; FedEx Freight Economy, when a customer can trade time for cost savings; and FedEx Freight Direct, a service to meet the needs of the growing e-commerce market for delivery of big and bulky products to or through the door for residences and businesses. Through one comprehensive 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, serving most points in Canada, as well as FedEx Freight Priority and FedEx Freight Economy service between the U.S. and Canada. FedEx Freight Mexico offers FedEx Freight Priority to deliver cross-border and intra-Mexico LTL shipments door-to-door, along with additional services to Mexico, Puerto Rico, and the U.S. Virgin Islands via alliances. The segment generated revenue of $9.4 billion in FY24.