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FedEx Stock Jumps As Founder And CEO Fred Smith Moves To Chairman Role

COO Raj Subramaniam will replace FedEx's iconic leader Fred Smith as head of the world's biggest package delivery group later this year.

Updated at 11:25 am EST

FedEx  (FDX)  shares jumped higher Tuesday after the world's biggest package delivery group said its chief operating officer, Raj Subramaniam, would replace longtime boss and company founder Fred Smith as CEO later this year.

Smith, 77, a former officer in the U.S. Marine Corps who served in Vietnam, founded FedEx in 1973, establishing a base in Memphis, Tennessee with 14 planes and less than 400 employees. He leaves the group with the world's biggest air cargo fleet, at 650 planes, and a worldwide staff of more than 600,000. He'll serve as executive chairman of the group when the transition is complete.

Subramaniam, a long-time FedEx executive who has toiled in the group's complicated supply chain, will assume CEO duties on June 1. The 54-year-old Subramaniam, however, will face many of the same challenges in his new role as investors look for profit margin improvement in FedEx's Ground division, which continues to lag rival United Parcel Service  (UPS)  amid rising labor and transport fuel costs.

“Fred is a visionary leader and a legend of the business world,” Subramaniam said. “He founded one of the world’s greatest and most admired companies, and it is my honor and privilege to step into this role and build upon what he has created."

"As we continue to transform as a company and reimagine what’s next, we will keep our people-service-profit philosophy at our core. I am immensely proud of our 600,000 team members around the world," he added. "Together we’ve set into motion ideas that have changed the world for the better, and together we will unlock new value for our people, customers, and shareholders.”  

FedEx shares were marked 4.3% higher in early Tuesday trading to change hands at $239.82 each, a move that would trim the stock's year-to-date decline to around 7.7%.

Earlier this month, FedEx reiterated its full year profit forecast, guiding investors to earnings in the region of $20.50 to $21.50 per share, following a modestly weaker-than-expected fiscal third quarter.

FedEx earned $4.59 per share over the three months ending in February, thanks to a $350 million hit linked to Covid-linked pilot shortages that limited airfreight capacity, even as revenues rose 10% from last year to  $23.6 billion.

"We are laser focused on improving our margins," Subramaniam told investors on a conference call earlier this month. "Staffing levels and the rapid acceleration in labor costs have stabilized and our network is operating at normal levels."

"Despite improvement in the labor headwind, volume levels in Q3 were softer than we had previously forecasted, in part due to omicron surge slowing customer demand," he added. "As such, we expect our second half Ground margins will be lower than our previous expectations and not reach double digits."