FedEx (NYSE:FDX) announced yesterday after market close that its founder, chairman, and CEO Fred Smith will step down from his duty on June 1 and will take on a role of an executive chairman.
Raj Subramaniam, who currently serves as the company's President and COO, will succeed Smith as the new CEO.
Smith founded FedEx in 1973 when the company started delivering documents and smaller packages to compete with the post office. Since then, FedEx saw rapid growth and became one of the largest delivery companies in the world, providing both ground and air service. Smith pioneered overnight operations in April 1973 that paved the way for the delivery of freight anywhere.
"FedEx has changed the world by connecting people and possibilities for the last 50 years," said Smith.
He added he plans to focus more on global challenges such as innovation, sustainability, and public policy.
Subramaniam joined FedEx 30 years ago and initially served in the company's marketing and management operations across the U.S. and Asia. He was later promoted to Chief Marketing and Communications Officer and the top executive of FedEx Express. In 2019, he became the company's President and COO and joined its board just a year later.
For BofA analyst Ken Hoexter, this marks a historic shift given Smiths importance to the delivery industry.
"Given Mr. Smith's historic focus on growth, we believe investors will view the transition positively, as Mr. Subramaniam has focused on ways to integrate FedExs Express, Ground, and Freight segments in ways it had not tried before. As president & COO (the company's 2nd ever COO, and heir apparent since Feb. 2019), he shifted the operating principals of FedEx to compete collectively, operate collaboratively, and innovate digitally, from compete collectively, operate independently, and manage collaboratively," Hoexter said in a client note.
Morgan Stanley analyst Ravi Shanker isn't surprised by the announcement.
"The initial thought the market will likely have (in our view) is whether this transition will mean any fundamental changes in FDXs operating strategy going forward. We doubt it. Mr. Subramaniam has been at FDX for a long time and has been a key player, if not a co-architect, of the current strategy and we do not see a high probability of a sudden and dramatic pivot in strategy (like combining Express and Ground as thought by some investors, for example) any time soon," Shanker wrote in a client note.
FedEx is set to host its first investor day in 10 years on June 28-29, just a few days after it releases F4Q results on June 23.
Shanker sees the upcoming event as a very important catalyst for both the company and FDX investors as it offers an opportunity to reset the narrative though the bar is both very low and very high at the same time.
"The succession plan was a key focus topic for the event but that is now out of the way with the twin announcements. We now wait to see what other big announcements lie in store for us at the event. Whether FDX is a $150, $225 or $300 stock in the next 12 months will come down to whether the market believes normalized EPS is $15, $20 or $25, which should become evident at the analyst day," Shanker added.
By Senad Karaahmetovic