XPO turns in a strong Q4 and full-year 2017 earnings performance

Fourth quarter revenue was up 12.2% annually at $4.19 billion, and net income for the quarter came in at $188.5 million, or $1.42 per share, which was well ahead of net income of $27.3 million, or $0.22 per share, a year ago.

Greenwich, Conn.-based XPO Logistics, a global provider of freight transportation and logistics services, announced very strong fourth quarter and full-year 2017 results late yesterday.

Fourth quarter revenue was up 12.2% annually at $4.19 billion, and net income for the quarter came in at $188.5 million, or $1.42 per share, which was well ahead of net income of $27.3 million, or $0.22 per share, a year ago. EBITDA for the quarter was $336.7 million and $1.37 billion for 2017, and free cash flow for the year came in at $374 million, which topped the target of $350 million. For 2017, XPO reported a 5% increase in revenue at $15.38 billion. Net income, at $312.4 million, or $2.45 per share, far outpaced the same period in 2017 at $63.1 million and $0.53 per share.

For quarterly results by business segment, XPO saw strong growth, including:

  • Transportation total revenue up 12.8% annually at $2.67 billion, with XPO noting growth was paced by increases in North American Freight Brokerage and last mile, European brokerage, and UK dedicated truckload. Quarterly operating income, at $132.8 million, was up 63% annually. And North American less-than-truckload (LTL) net revenue rose 5% to $339.3 million, with the operating ratio for the segment at 89.9% compared to 90.5% (an improvement of 60 basis points) a year ago for its best quarterly operating ratio in 12 years; and
  • Logistics total gross revenue was up 12% annually at $1.57 billion, with growth mainly due to strong demand for contract logistics in Europe and North America, which XPO said was partially offset by a decline in transportation management revenue in North America. And XPO added that European contract logistics growth was driven by a strong peak season for e-commerce, with the largest North American gains stemming from e-commerce and industrial activity

Other notable metrics included XPO signing $2.8 billion in new business in 2017 for a 55% annual gain, with its global sales pipeline at more than $3.2 billion.  

“We had a strong finish in 2017, and it shows in these numbers,” said XPO Chairman and CEO Brad Jacobs in an interview.

Addressing XPO’s North American LTL business, Jacobs said yield improvement in the quarter accelerated to 2.6%, with tonnage up 2.9%, and pricing on contract renewals was up 5.3%. In order to capitalize on the strong LTL environment, Jacobs said XPO has hired 90 new LTL sales representatives in the past 60 days and are adding another 80 over the next 60 days.

“The LTL market is buoyant,” he said. “Pricing is good and getting better. We are seeing accelerating trends. The external LTL environment is good, with the industrial economy humming, and the internal side is working as well, as we continue to drive operating improvement, load factor rose 4.5%, and we have been investing in the fleet and brought down the average tractor age from to 5.2 years from 5.8 years a year ago. We have updated all the technology in our LTL service centers and are solidly on track to generate a more than $1 billion in LTL EBITDA in the next four years.”

And on the North American supply chain side, he said XPO has opened up 17 new contract logistics facilities during the fourth quarter, or one every five days, adding that XPO is very bullish about its new proprietary warehouse management systems (WMS) platform, which XPO has been beta testing and on track for a March launch.

“This is going to dramatically reduce ramp up time on new projects and optimize for mobile [usage] and integrate very quickly with other technologies, so, for example, the new interface will be able to bring on new robots in a fraction of the time the typical WMS would be able to,” he said.

On the freight brokerage side, Jacobs said XPO grew the segment’s value by 33% annually, with the tight market that started in the third quarter carried into the fourth quarter and driving a significant amount of spot market business with higher margins, as that trend continued into the New Year.

It was a similar theme for the company’s market-leading last mile segment, which delivered solid revenue and earnings growth, due to a robust Peak Season and the company’s e-commerce expertise, which Jacobs said drive exceptional growth of 21% and XPO opening up eight new last mile hubs in the fourth quarter to handle increased customer demand. XPO plans to open up another 30 hubs in 2018.

Jacobs was very optimistic about the company’s operations and performance in Europe.

“The economy is growing in every European country where we operate,” he said. “European transport grew revenue by 16%, with especially strong results in brokerage, dedicated, and LTL. And our European logistics revenue grew 21%.

Jacobs stressed that IT remains a cornerstone of XPO’s growth path, noting that the company has upped its IT budget to more than $450 million for 2018, with the company planning to roll out a whole host of new tools and apps throughout the year.

“We are continuing to grow the business at a fast clip,” said Jacobs. “Our free cash flow generation is accelerating, and 2018 looks like it is going to be another buoyant year for us. We do business in more than 30 countries in every aspect of the economy, so there is not an industry we don’t touch. This gives us a good pulse of the economy, and…we are seeing global and synchronized growth in every major economy in Europe. And in North America we are seeing nice GDP growth, both for the industrial part of the economy and on the consumer side. Unemployment is generally low and growth is there. That is good for the transportation and logistics industry, with more goods being moved through their customers’ supply chains and demand is up. There is more demand for high quality service providers like us. These favorable market conditions and our good position within the market is what powering these great results we delivered in the fourth quarter.”  

One of XPO’s greatest strengths since its inception in 2011 has been its activity on the acquisition front. In mid-2017, XPO said it would resume being active again in acquiring companies, Jacobs said the objective would be to close one or two large transactions by the end of 2018 and said XPO is on track to do that, given its financial situation. He declined to disclose what companies and what specific sectors XPO is currently vetting at the moment.

Despite XPO’s solid results, commentary from Morgan Stanley analyst Ravi Shanker in a research note was somewhat subdued

“This was a relatively bland quarter from XPO, with nothing that stood out in particular for either bulls or bears,” he wrote. “However, that in itself may be the biggest takeaway as it shows how far the company has come from its days of consistently spicy earnings releases. XPO has matured into a high-quality, high-tech, high-growth story driven by secular eCommerce tailwinds.”


Article Topics
E-commerce   Last Mile   LTL   XPO   XPO Logistics   All topics


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About the Author
Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
 
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