By Lisa Baertlein
June 1 (Reuters) – FedEx Corp said on Monday that FedEx Freight has completed its spinoff from the parent company, paving the way for its trading debut on the New York Stock Exchange under the symbol “FDXF.”
Shares of FedEx were up 2.2% in premarket trading after announcing the completion of the FedEx Freight spinoff. FedEx Freight is the largest provider of less-than-truckload services in the U.S.
Its debut as an independent company comes at a time when freight rates could be emerging from a four-year slump, partly due to several operators exiting the market because of financial losses and a push by federal regulators to drastically restrict commercial driver licenses to U.S. citizens only.
“As a newly separated, pure-play entity, the company offers a sizeable margin improvement opportunity, though this is highly dependent on execution,” BMO Capital Markets analyst Fadi Chamoun said in a recent note.
That improvement hinges on management’s ability to translate network advantages into better service quality, higher revenue per shipment, and sustained operating ratio improvement, Chamoun added.
J.P. Morgan analyst Brian Ossenbeck said he values FedEx Freight at a lower multiple compared to its rivals XPO, Saia and Old Dominion Freight Line, “given execution risk and transition costs related to the spin as well as persistent underperformance on service and volume metrics”.
FedEx Freight expects average revenue growth of 4% to 6% in the medium term, Chief Financial Officer Marshall Witt said in April.
The company also expects average core profit growth in the range of 10% to 12% over the medium term, Witt added.
Investments in modernizing and separating the business from FedEx will dampen profit in the short term, but cost controls, automation and the addition of more high-profit cargo will strengthen margins over time, Witt said.
(Reporting by Lisa Baertlein in Los Angeles and Nandan Mandayam in Bengaluru; Editing by Shinjini Ganguli)
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