FedEx Freight emerged as the latest Wall Street darling after its stock jumped by more than 15 percent on news of a robust profit margin and an impending decision on its less-than-truckload (LTL) wing. Trucking industry insiders speculate the company could spin off the LTL infrastructure valued at approximately $30 billion. Such a move could garner a market capitalization of $50 billion as a standalone facet, according to reports.
Releasing a fiscal report on Tuesday, June 25, raised more than a few eyebrows when the company noted that it is “conducting an assessment of the role of FedEx Freight in the company’s portfolio structure and potential steps to further unlock sustainable shareholder value.”
FedEx CEO Raj Subramaniam has been on a mission to slash expenses and restructure the operation to improve profitability. The 56-year-old FedEx chief eliminated about 2,000 jobs in Europe after retooling its workforce. The freight transportation giant enjoyed greater agility than its unionized competitor, United Parcel Service (UPS), but is still feeling some heat from Amazon’s freight endeavors.
“With Amazon coming into the market and other large retailers doing more of their own package delivery, the average daily volume that is available to FedEx and UPS has gotten smaller,” SJ Consulting president Satish Jindel reportedly president of he said. “There used to be more barriers to entry to being a parcel carrier than there were to getting into LTL. That is no longer the case.”
The good news for FedEx Freight truckers is that the LTL business led all comers last year, generating over $10 billion. During 2023, its nearest rival — Old Dominion — posted $6.1 billion in revenue, with now-defunct Yellow Corp sliding into third at $4.7 billion. In its fiscal year that ended on May 31, FedEx Freight took in an industry-leading $9.6 billion, and LTL saw a 2-percent improvement in fourth-quarter earnings. The LTL component touted almost 30,000 power units and nearly 43,000 workers across 390 service centers, according to FedEx’s most recent annual report.
By that same token, FedEx failed to renew an agreement with the U.S. Postal Service that is scheduled to expire in September. FedEx took in roughly $2 billion per year for the past two decades from the lucrative arrangement. The postal service announced it would move forward with UPS as its go-to resource.
Regardless of whether FedEx decides to operate, spin-off or sell its LTL infrastructure, that part of its operation shows no signs of slowing. Based on its history and aggressive retooling efforts, LTL truck drivers appear to be the most secure employees in the organization.
Sources:
https://www.ttnews.com/for-hire/ltl/2023
https://www.wsj.com/articles/trucking-experts-project-spinoff-of-fedexs-freight-business-7129e046
https://www.investors.com/news/fedex-earnings-ups-deal-rxo/
https://finance.yahoo.com/news/fedex-climbs-cheery-annual-profit-112503600.html
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