XPO delivers strong Q1 earnings results

Greenwich, Conn.-based XPO Logistics, a provider of global freight transportation and logistics services, reported solid first quarter earnings late yesterday.

First quarter revenue, at $4.12 billion, was off 1.7% annually, and net income attributable to common shareholders, at $43 million, was down compared to $67 million a year ago.

Company officials said that financial results for the quarter were impacted by various factors, including: a reduction in business by the company’s largest customer foreign currency exchange; higher interest expense on an annual basis partially reset by share repurpose activity; and a 2019 tax rate of 27% compared to 0% last year. XPO said that quarterly adjusted EBITDA, at $343 million, was up 3.9% annually, and adjusted earnings per share, at $0.51, topped Wall Street estimates of $0.39. Free cash flow for the quarter came in at $96 million.

“We delivered a solid beat on adjusted EBITDA and an even bigger beat on free cash flow,” said XPO Chairman and CEO Brad Jacobs in an interview. “Any way you look at it, we are off to a great start this year. We came out swinging and our first quarter results show it.”

That point by Jacobs was driven home by XPO having brought in a record $1.1 billion in new business for the quarter, which is up 15% annually.  He explained that the 15% growth represents an acceleration over the 6% annual growth for new business wins for the fourth quarter of 2018.

Addressing the EBITDA number, Jacobs explained that not only did it exceed expectations; it also set a first quarter record.

“This growth in business, profit, and free cash flow is after we absorbed a significant loss of business from our largest customer,” said Jacobs. “If you look at our global sales pipeline, that also hit a new high…as it crossed $4 billion for the first time at $4.1 billion. Profitably improved sharply in brokerage, intermodal, and managed transportation.”

Quarterly performance by segment:

• Total transportation revenue, at $2.66 billion, was down 4%, reflecting lower freight brokerage and last mile postal injection revenue from XPO’s largest customer, as well as the adverse impact of foreign currency exchange, which was offset by less-than-truckload (LTL growth, and European transport operations. LTL yield was up 3%, and the LTL adjusted operating ratio, at 89.4, was the best for the first quarter in 20 years; and
• Logistics revenue, at $1.49 billion, rose 3.2%, with organic growth up 8.1%. XPO cited e-commerce, food and beverage, consumer packaged goods, and aerospace as the growth drivers for the quarter

Net revenue for XPO’s freight brokerage segment, at $127 million, grew 9.5%, which was paced by the continued leveraging of XPO Connect, its cloud based digital marketplace, which provides a single point of entry for visibility across various transportation modes in real time, which, in turn, helps shippers identify both time- and cost-saving opportunities. 

“XPO Connect is resonating in the carrier community,” said Jacobs. “The amount of downloads from carriers is rising…and the number of carriers we had on it a year ago was zero, and it has shot up to 18,000 carriers. We are also rolling it out to last mile and in Europe.”

On the LTL side, Jacobs said XPO is experiencing a very positive pricing environment, as evidenced by the 3% quarterly yield improvement, almost tripling the 1.1% reading for the fourth quarter of 2018. When looking at the LTL EBITDA for Con-way, when XPO acquired the company in late 2015, Jacobs said that has been nearly doubled since then, adding that XPO is investing in various technology tools for LTL to further enhance network profitability and to continue to enrich the customer experience.

Looking at the company’s logistics segment, Jacobs observed the organic revenue growth, at 8.1%, was very strong, given that GDP is slightly above 3%.

“We are growing much faster than the market and our competitors,” he said. “And we are benefitting from the record number of logistics start-ups that we have layered in throughout 2018. XPO Direct [its nationwide shared-space distribution model for omnichannel retail and e-commerce customers] is doing very well and actively onboarding big retail and manufacturing customers.”

For 2019, XPO said its full-year revenue target is in the 3%-5% range, which equates to organic revenue growth of 5.5%-7.5% annually, with adjusted EBITDA pegged at $1.650 billion to $1.725 billion, for an annual increase of 6%-10%, and free cash flow between $525 million to $625 million.