XPO Logistics reports strong third quarter earnings

Third quarter earnings for non asset-based 3PL XPO Logistics issued by the company last night were strong, with the company announcing that total gross revenue was up 241.5 percent at $662.5 million, while net revenue saw a 402.7 percent gain to $175.1 million.

XPO said that it had a quarterly net loss of $11.7 million, and adjusted EBITDA saw a $24.2 million gain, which was well ahead of a $7.1 million loss for the same quarter a year ago. As of September 30, 2014, XPO had roughly $690 million in cash, with $10 million in restricted cash.

For its full-year outlook, XPO said it now expects an annual revenue run rate of more than $3 billion by December 31, up from a previous forecast of $2.75 billion, and an annual EBITDA run rate of at least $150 million for the same period, ahead of a previous target of $100 million.

For its full-year outlook, XPO said, as it did during second quarter earnings that it expects an annual revenue run rate of more than $3 billion by December 31, up from a previous forecast of $2.75 billion, and an annual EBITDA run rate of at least $150 million for the same period, ahead of a previous target of $100 million.

XPO Chairman and CEO Brad Jacobs told LM in an interview that the third quarter was a landmark one, with company EBITDA at its highest point to date. And he said that the company’s recent acquisition of New Breed Logistics, a non asset-based 3PL focusing on contract logistics services, has made a seamless transition to XPO and performed ahead of plan in its first month out of the gate as part of the company. Jacobs also said the ongoing integration of Pacer International, a freight transportation and logistics services provider and the third largest provider of intermodal services in North America is also going well, with the company’s intermodal team excelling at meeting customer requirements and objectives in tandem with gains in customer satisfaction, as well as proprietary IT development, and revamping the company’s training program.

“In a short time, we have had a great amount of success cross-selling multimodal services to our customers and generating revenue across multiple lines of business, with 36 of our top 50 customers, and half of those 36 customers are using three or more of our services.”

Another area where XPO continues to make progress, according to Jacobs, is its freight brokerage cold starts, which it defines as establishing new operations in new cities. XPO said that it has added a new location in Denver, Colo. and that it has gained approval for tax incentives through the Kentucky Business Investment Program to create up to 88 jobs at its Newport, Kentucky brokerage office and was also approved by the Missouri Department of Economic Development for an economic incentive package to create up to 125 jobs at its Kansas City brokerage office.

XPO’s freight brokerage cold starts have more than doubled in the last year, with a revenue run rate at more than $250 million compared to $120 million in 2013.

Individual group performances:
-Freight brokerage total gross revenue at $518.7 million was up 239.8 percent and net revenue margin was up to 20.8 percent from 18.1 percent in 2013, with XPO attributing the gains to the acquisitions of 3PD, Optima, and Pacer;
-Contract Logistics had a net revenue of $50.1 million and an operating income of $4.5 million, with XPO’s acquisition of New Breed completed on September 2, 2014;
-Expedited Transportation’s total gross revenue at $36.5 million was up 45.4 percent annually, and net margin revenue grew to 30.2 percent, up from 18.1 percent a year ago, with the gains largely due to the acquisition of NLM; and
-Freight Forwarding had a total gross revenue of $59.7 million for a 212.2 percent increase, while net revenue margin was at 10.5 percent compared to 13.8 percent for the third quarter of 2013. XPO said the mixed results for this segment were due partly to the consolidation of the former Pacer freight forwarding operations that in turn shifted the revenue mix toward higher-revenue, lower-margin international transactions

Growing through acquisition continues to remain a key theme for XPO, with Jacobs explaining that the company is currently in discussions with various attractive acquisition prospects in different parts of its existing business, including contract logistics, last mile, and freight brokerage.

And its recent $500 million high-yield bond offering and a $700 million infusion in early September from the institutional investor trio of PSP Investments, Singapore’s sovereign wealth fund called GIC, and the Ontario Teachers’ Pension Plan will be used to accelerate its growth strategy and allocated mainly for unspecified acquisitions.

“Our philosophy on acquisitions is to at any one point in time be talking to a fairly large number of targets at which point we determine the targets that may work and the ones that may not,” said Jacobs. “It just so happens that most of the acquisition candidates that we are seeing right now are either in contract logistics, last mile, and a few in truck brokerage. All of our verticals will get better as they get bigger because you get more density and are able to do a better job for your customers and gain synergies as well.”

When asked about market conditions specifically on the brokerage side, Jacobs said things have loosened up sequentially but are still very tight when compared to the last two years.

In terms of how market conditions could shift in advance of the holiday season, he said there was a fair amount of internal debate as to how and when a true peak will come.

“The holiday (shipping) season got off to a fairly late start from our perspective,” he explained. “But we are starting to see more holiday-related freight move, with activity in California having gotten very busy very quickly over the last couple of weeks. What is happening now could end up being the calm before, the storm, but it is a little too early in the quarter just yet. We need to let things play out.”

The myriad congestion-related issues at West Coast ports are good for XPO, he said, because shippers are more willing to deal with 3PLs like XPO more so than they might otherwise be, and valuing the service they bring for locating capacity and helping with rates as well. Pricing also remains strong, he noted, while not as strong as it was about a month ago.