FedEx's freight spinoff plan to fortify core business, boost industry (updated)

Old Dominion Freight Line

20/12/2024 14:44

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      Shares rise 4% despite forecast cut
    

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      FedEx Freight could be worth $30 bln-$35 bln - analyst
    

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      LTL market to gain from the spinoff
    

  
 (Adds graphic, updates shares)
    By Abhijith Ganapavaram
       Dec 20 (Reuters) - FedEx's  FDX.N  decision to spin off
its freight truckload segment will strengthen the business while
allowing the parcel delivery giant to better tackle challenges
in its core operations, analysts said on Friday.
    Shares rose 4% in early trading after the announcement late
on Thursday and were set to add about $3.8 billion to the
company's market value, despite the bellwether for global trade
trimming its annual profit forecast.
    FedEx Freight, the largest U.S. provider of
less-than-truckload (LTL) services, could be valued between $30
billion and $35 billion, as per an estimate from Citi. 
    "The decision to proceed with a full separation of the LTL
segment has the potential to unlock significant value and is a
welcomed holiday gift to FDX shareholders," BMO Capital Markets
analyst Fadi Chamoun wrote in a note on Friday.
    Analysts have long argued that Freight was undervalued
within FedEx, which has been slashing expenses and consolidating
its express and ground operations in recent quarters.
    FedEx disclosed in June it was weighing options for the LTL
business, which involves carrying multiple shipments from
different customers on a single truck.
    The spin-off will be completed within 18 months, which some
analysts say will allow FedEx to cut risks and separate the
business when freight demand is favorable.
    The move will allow FedEx to sharpen its focus on addressing
the impact of soft industrial shipping demand and a shift away
from higher-priced deliveries among customers.
    FedEx also faces a $500 million hit from the loss of the
United States Postal Service, its largest customer, earlier this
year.
    Its shares have risen 9.1% this year, underperforming the
S&P 500 index but better than rival UPS'  UPS.N  22% slump.
    
    LTL MARKET TO BENEFIT
    FedEx Freight had revenue of $9.4 billion in fiscal 2024.
Some of its competitors in the U.S. include XPO Inc  XPO.N  and
Old Dominion  ODFL.O . 
    "We believe FXF's (FedEx Freight's) investment in sales,
service, and margin during the transition will be positive for
the broader LTL industry," J.P. Morgan analyst Brian Ossenbeck
said.
    FedEx said it has started building out a dedicated sales
force for the business and expects to add over 300 specialists
by the time of separation.
    As part of FedEx, Freight is "trading at 13 times forward
estimates. If you look at some of the LTL peers, they trade
north of 20 times," Edward Jones analyst Faisal Hersi said.

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FedEx shares since 2022    https://tmsnrt.rs/4gnNIg1
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 (Reporting by Abhijith Ganapavaram in Bengaluru and Lisa
Baertlein in Los Angeles; Editing by Sriraj Kalluvila)
 ((Email: Abhijith.G@thomsonreuters.com; Mobile:
+91-9019785574;))