FedEx Fiscal Q2 Earnings Report Highlights

• Earnings Overview:
  • FedEx reported its fiscal second-quarter earnings on December 19.
  • Revenue declined to $22 billion, missing Wall Street expectations.
  • The results highlighted challenges with U.S. domestic demand.
• Segment Performance:
  • FedEx Freight, the company’s less-than-truckload (LTL) shipping division, experienced an 11% year-over-year drop in revenue due to declining shipment volumes and reduced U.S. industrial output.
  • Despite the setback, FedEx Freight remains a leader in its sector, with revenue of $9.4 billion last year.
• Spinoff Announcement:
  • FedEx announced plans to spin off its FedEx Freight division within the next 18 months.
  • Bloomberg Intelligence estimates the unit’s enterprise value at over $30 billion.
  • The move positions FedEx Freight as the largest player by revenue in the LTL industry.
• Analyst Insights:
  • Evercore ISI believes the spinoff will unlock significant value, estimating FedEx’s worth at $329 per share, about 10% higher than its current trading price.
  • Analyst Jonathan Chappell noted the move could enhance focus and competitiveness for both the core business and the spinoff.
  • Stand-alone trucking companies have seen rising valuations, potentially benefiting FedEx’s stock performance.
• CEO Commentary:
  • CEO Raj Subramaniam stated the spinoff will allow both companies to benefit from greater focus and competitiveness.
  • For FedEx, shedding the freight unit will enable concentrated efforts on improving its core operations.
• Valuation & Upgrade:
  • FedEx stock trades at 14.05x earnings and 0.74x sales, a discount compared to industry peers, presenting a compelling opportunity for long-term investors.
  • Loop Capital upgraded FedEx to “Buy” from “Hold,” raising its price target to $365 from $288. The upgrade factors in the potential value creation from the spinoff and a recent dip in the stock price.