FedEx’s visionary spinoff strategy is set to unleash untapped potential and promises a surge in shareholder value. Coupled with an aggressive $4 billion cost-cutting plan, this global delivery powerhouse is primed to outperform.
In fact, earnings per share soared past analyst expectations – a testament to the firm’s financial prowess and shareholder-centric approach.
Meanwhile the stock trades cheaply at just 13.5 times the company’s forward earnings forecast. We feel this offers tremendous value when you consider that the firm remains a dominant player in its niche. The stock is a long-term buy with plenty of upside to beat the market in years to come.
FEDEX CORP. (New York symbol FDX) delivers packages in the U.S. and 220 other countries.
FedEx now plans to spin off its FedEx Freight operations as a separate company. That business is a leading provider of less-than-truckload (LTL) services, which combines freight from multiple customers into a single vehicle. It accounts for about 10% of FedEx’s total revenue.
Spinoffs tend to work out well for both the new firm and the former parent, as they let both better focus on their main businesses. FedEx will structure the separation so that investors will only be liable for capital gains taxes when they sell their new shares. It expects to complete the transaction in mid-2026.
Meantime, in FedEx’s fiscal 2025 second quarter, ended November 30, 2024, revenue declined 0.9%, to $21.97 billion from $22.17 billion a year earlier. That missed the consensus forecast of $22.11 billion.
The lower revenue was largely due to weaker demand for shipping services from industrial customers, as well as the recent expiration of FedEx’s deal with the U.S. Postal Service.
FedEx’s customers are switching to its slower, less-expensive delivery services, in response to still-elevated inflation and interest rates. Businesses are also shipping fewer packages.
Due to lower volumes at its air-based Express business, FedEx plans to cut about 2,000 jobs at its European operations. The company expects to pay $250 million in severance and other costs, but the plan should cut between $125 million and $175 million from its annual costs by the end of the fiscal year ending May 31, 2027.
FedEx: An attractive valuation presents a buying opportunity for investors
Meanwhile, FedEx continues to make progress with a major restructuring plan, which includes merging its FedEx Express (air freight), FedEx Ground, FedEx Services and other smaller operating companies into a single division. These moves should cut $4.0 billion from its annual costs by the end of fiscal 2025.
If you exclude costs related to that plan and other unusual items, FedEx’s earnings in the latest quarter fell 2.0%, to $990 million from $1.01 billion. The company spent $1 billion on share buybacks in the quarter, which is why earnings per share rose 1.5%, to $4.05 from $3.99. That topped the consensus estimate of $3.93 a share.
FedEx now expects to earn between $19.00 and $20.00 a share for all of 2025, which is down from its previous forecast of $20.00 to $21.00 a share. The stock trades at a low 13.5 times the midpoint of that new range.
As well, with the July 2024 payment, the company raised your quarterly dividend by 9.5%, to $1.38 a share from $1.26. The new annual rate of $5.52 yields 2.1%.
Recommendation in Wall Street Stock Forecaster: FedEx Corp. is a buy.
