GXO Logistics reports solid third quarter earnings

Greenwich, Conn.-based global contract logistics services provider GXO Logistics’ debut earnings, for the third quarter, which were issued yesterday, got off to a strong start. This was GXO's first standalone earnings release since it was spun off from XPO Logistics in August. 

GXO reported $2.0 billion, topping the $1.6 billion reported from a year ago, when it was still part of XPO Logistics (the spin-off from XPO was made official in August). And net income came in at $72 million, and basic earnings per share, at $0.63, topped last year’s $0.16. Adjusted EBITDA, at $163 million, topped last year’s $142 million.

“We executed extremely well in the third quarter,” said Malcolm Wilson, chief executive officer of GXO, in a statement. “We reported strong net income growth, as well as the highest revenue and adjusted EBITDA of any quarter in our operations’ history despite unprecedented near-term global supply chain challenges. Our sales pipeline reached a record level, fueled by significant new customer demand. Looking ahead, we expect continued growth driven by the three massive secular tailwinds of automation, e-commerce and outsourcing.”

Wilson added that in the third quarter, GXO won new customer contracts with an aggregate lifetime value of over $1 billion, positioning it well to deliver on its expected 2022 organic revenue growth of 8% to 12%. And he also said that GXO’s revenue retention rate has improved through 2021 versus the number reported at its investor day, demonstrating its customers’ loyalty to GXO’s value-added solutions.

Technology also played a major role in the company’s strong quarter, with GXO’s total technology and automated systems in warehouses heading up 139% annually.

XPO Chief Investment Officer Mark Manduca told LM that year-to-date GXO has more than $4 billion in lifetime contract value.

“In terms of what that means, if you were to just look at growth for next year, we have $700 million worth of incremental revenue hitting next year,” he said. “That is a good number for a company that only has $7.6-to-$7.8 billion in revenue this year. It basically implies you have only done 9% potentially in gross win growth next year from the likes of Raytheon, Abercrombie, and Apple [among other brand name shippers]. There is a lot to like there.”

Looking at trends in year-to-date metrics, Manduca said that 40% of GXO’s customer wins are from new outsourced contracts, 29% of wins are from competitors, and 31% is expansion of scope.

“The industry is gravitating towards scale players that have expertise in e-commerce and in reverse logistics, in hiring large amounts of labor, and 3PLs that have expertise in technology, and their ability to integrate it, not just for integration’s sake, but to improve but to improve things like picking and safety and the working environment for team members,” he said. “Couple that with how we are global, as are e-commerce and big data, and AI. Overlay that with what is a strong balance sheet, and you have yourself a unique business. There is nothing like this in the market.”

Manduca took that a step further, calling GXO a “category creator” and wants to be a company that does what it says and says what it does.

“We are all about making sure that this is about delivery,” he said. “We are not benign to the environment, and we get the fact that there are labor shortages and that Peak Season is fuller this year than it is in most years and Peak is usually quite fraught. But the job here is to help our customers win and that is why our services and technology are in more demand and why our sales have been so strong.”

And he explained that the three key factors driving GXO include: helping customers win; making sure team members have a safe, fun, and rewarding place to work in; and producing return on invested capital for shareholders.

In terms of the issues GXO is seeing, in the form of supply chain shortages and port congestion, he said they are viewed as temporary issues, with GXO is well-prepared and vigilant for what is coming.

“Our business is set up in two ways—one on the revenue line, we have minimum volume requirements,” he said. “Which means that our business has a buffer in place, such that if no volume goes through the warehouse, we still get paid on a number of our contracts. And in terms of our cost base, it is variable so when you see movements on your top line, you can flex your variable cost base accordingly.”

Addressing Peak Season, Manduca said that GXO is in good shape, as it moves along in the fourth quarter.

“The shape of Peak is going to be different this year,” he said. “I think it is going to be slightly longer. Based on what we are hearing from customers, it could be that we are working on more of a five-to-six-week period rather than a more normal two-to-three-week period. If you think about how people are shopping, brands are using more of a direct-to-consumer approach. Brands want to get to the consumer as quickly as they can…bypassing the traditional six-week brick and mortar route and go straight to the consumer via e-commerce.”