FedEx Corp. shares are up 2% premarket following the overnight news its founder is stepping down after five decades of service.
Taking the place of Frederick W. Smith, Chairman and CEO, is Raj Subramaniam, President and COO, who will be promoted to President and CEO.
Smith announced he would be stepping down as Chairman and CEO in a statement on the company’s website on Monday evening. His new title will be “Executive Chairman.” Subramaniam is expected to take over the role as CEO in June.
“FedEx has changed the world by connecting people and possibilities for the last 50 years,” Smith, 77, said. “As we look toward what’s next, I have a great sense of satisfaction.”
Subramaniam’s accession to CEO was long expected. About a month ago, Smith’s son, Richard W. Smith, became the head of FedEx’s express division.
Smith began FedEx in 1973 and has transformed the company into one of the top shipping companies in the world.
As of recent, top management has been tackling deteriorating profit margins. The shipper has moved to a seven-day service and focused on small businesses as e-commerce package volumes boom.
FedEx shares are higher in premarket trading on the overnight news. Year-to-date, shares entered into a correction.
Once Subramaniam gains control, it’s likely that top shareholders will exert pressure to reduce costs and combine the company’s separate Express and Ground networks, Satish Jindel, founder of ShipMatrix, a provider of data and parcel consulting services, told Bloomberg.
“He needs to speed up the integration of Express and Ground,” Jindel said. “The other challenge is cutting back on capex. They still spend a lot of money on airplanes and if they integrate the two networks, they will need fewer airplanes and smaller ones.”
“Subramaniam will provide consistency but has his work cut out to improve Ground margin and generate benefits from the TNT acquisition in Europe. This also ends any confusion about leadership after Richard Smith was named CEO of Express earlier this month,” Bloomberg Intelligence’s Lee Klaskow said.
Also responding to the leadership change is Morgan Stanley’s analyst Ravi Shanker who told clients, “this move is not likely to surprise the market at all but it does mark the end of an era as one of the most iconic CEOs in corporate American history moves on.”
Shanker said the market’s initial thought will be if “fundamental changes” for reducing overhead will be implemented, which he said, “We doubt it.”
Morgan Stanley has an equal-weight rating on the stock with a $250 price target.
Citi analyst Christian Wetherbee also said the announcement “is not overly surprising, but is likely to be received well by investors as it follows a well-telegraphed line of succession.”
