XPO reports record third quarter results

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

Third quarter revenue was up 11.5% annually to $4.34 billion, and quarterly net income attributable to common shareholders coming in at $100.8 million, which topped $57.5 million for the same period a year ago. And earnings per share, at $0.89, outpaced $0.59 a year ago and missed Wall Street expectations of $0.98 per share. Quarterly adjusted EBITDA increased to $414.9 million, which was ahead of $396.8 million a year ago.

Quarterly performance by segment:

• Transportation total revenue was up 10.5% annually at $2.85 billion, with XPO noting growth was paced by increases in freight brokerage and last-mile in North America, as well as dedicated truckload transportation in the UK and France. Quarterly operating income, at $195.2 million was up 25.7% annually. North American less-than-truckload (LTL) net revenue was up 5.4% at $981.7 million, with the adjusted operating ratio for the segment at 85.4%, for an improvement of 220 basis points; and
• Logistics revenue was up 13.1% to $1.52 billion, with growth led by growing demand for e-commerce logistics on a global basis, as well as the North American-based consumer packaged goods and technology sectors, and the European fashion sector. Operating income was down 11.6% at $67.3 million, and adjusted EBITDA was flat at $128 million. XPO said decline in operating income was due to a $15.6 million charge related to a customer bankruptcy and a new record number of contract start-ups on a year-to-date basis, with 46 in Europe and 44 in North America

“We delivered record third quarter results for revenue, net income, EPS, and EBITDA, said XPO Chairman and CEO Brad Jacobs in an interview. “We outpaced the industry with organic revenue growth of 10.5% and signed up another $918 million in new business in the quarter, which was up 43% annually. We entered October with a new business pipeline of $3.7 billion, which is up $400 million annually and is as high as it has ever been. XPO also had the fastest growth on record for its North American supply chain, which was up 18%, and we are rolling out the 5,000 new intelligent robots we previously announced.”

Jacobs also touted XPO’s last-mile business, with revenue up 12% to $271 million and the unit is on track for $1.1 billion in revenue for all of 2018. And XPO recently completed the rollout of all its 85 last-mile hubs ahead of schedule, with these hubs all within 125 miles of 90% of the U.S. population.

On the truck brokerage side, XPO grew revenue by 30% for the quarter, which Jacobs said was paced by the company’s dynamic freight matching algorithms.

“We launched XPO Connect from scratch in April and three months later 6,000 of our carriers opted in, and in the three months since then we have more than doubled our carrier base to more than 13,000,” he said.

As for LTL, XPO grew operating income by 28%, with the aforementioned 220 basis-point gain in quarterly operating ratio. Jacobs added that XPO will soon be rolling out a list of LTL-related technology projects that he expects will add $100 million to operating profit over the next two years.

Globally, XPO had record organic growth for its transport business in Europe of 7.3%. And global logistics revenue rose 13% year-over-year to $1.5 billion in the quarter, with double-digit growth in e-commerce, technology, consumer packaged goods, agriculture, industrial, and healthcare customer verticals.

In Europe, Jacobs said the fastest-growing supply chain customers were in The Netherlands, U.K., France, and Italy, with a record number of contract start-ups year-to-date, with 46 in Europe, as well as 44 in North America. What’s more, on the company’s roadmap, XPO has another 22 contract logistics start-ups expected in the fourth quarter, with 11 each in Europe and North America.

“There is lots of good momentum going into the fourth quarter and the New Year,” said Jacobs.

Since its inception in 2011, XPO has forged a bold and ambitious path on the acquisition front. Jacobs explained that XPO is not done with growing through acquisition.

“We are interested most in companies that have long-term contractual relationship with their customers,” he said. “Recurring revenue streams is attractive and of value to us, and, of course, from a financial perspective, any deal that we do will not only be strategically compelling but also maximize shareholder value.”

As for vetting potential acquisition targets, Jacobs said that activity has perked up on the M&A front, with discussions having become more lively, valuations have come down, and sellers have generally become more reasonable and motivated.