Q&A: XPO Logistics CEO Jacobs discusses Q2 results,
August 07, 2012 - LM Editorial
Like the first quarter, non asset-based 3PL XPO Logistics posted mixed earnings results in the second quarter. Total quarterly revenue—at $54.5 million—was up 23.7 percent annually, and its quarterly net loss of $5.2 million was down compared to net income of $914,000 for the second quarter of 2011.
As LM has reported, under CEO and Chairman Bradley S. Jacobs, XPO has made a focus and concerted effort towards building a multi-billion dollar transportation brokerage business in the coming years, growing organically and through acquisitions, building a comprehensive IT structure, and getting the right management team in place.
With acquisitions a key part of the company’s growth strategy, XPO announced its second acquisition since Jacobs and his management team took over, bringing Canada-based non-asset 3PL Kelron Logistics into the fold for $8 million, following March’s acquisition of Continental Freight Services, a non-asset based 3PL focused on truck brokerage services based in Columbia, S.C.
In the second quarter, XPO’s freight brokerage group had total revenue of $13.9 million for a 107.5 percent annual improvement. Concert Logistics Group, its freight forwarding segment was down 4.7 percent at $16.5 million, and its Express-1 expedited transportation business group was up 11.6 percent at $25.7 million.
Logistics Management Group News Editor Jeff Berman recently spoke with Jacobs to discuss XPO’s second quarter results, his outlook on the market, and the future. A transcript of the conversation is below.
Logistics Management (LM): What are your thoughts on XPO’s second quarter results?
Bradley S. Jacobs: We are starting to see some significant improvements in our operations. We increased total revenue gross dollars by 18 percent and total revenue in our brokerage business was up more than 100 percent. Our expedited business had double-digit growth both for the top line and profitability. The freight forwarding business, which is still facing a challenging environment, turned a corner generated 5 percent same store growth, which is the first time in five quarters it has shown a positive [annual] increase. On the negative side, the investments we are making for our infrastructure impacted our results, but those investments will create value over time
LM: Kelron Logistics is now part of XPO Logistics. It is a $100 million company that is well-known. Growing through acquisition is part of XPO’s plan, coupled with Cold Starts. What made Kelron attractive to XPO?
Jacobs: Kelron has offices in Toronto, Vancouver, and Montreal and in the U.S. and has been in business for more than 20 years. They have relationships with more than 1,000 customers and more than 2,500 carriers. We are adding Kelron to our national operations center in Charlotte to give them access to our capacity. There are 41 employees in Charlotte now, whom are dialing for diesel all day long and Kelron has access to that now and will be able to purchase capacity and say yes to customers more often. With this extra capacity, we will be able to earn significantly more share of wallet with Kelron’s 20-year old customers. We are migrating Kelron to our IT, which we think is more state of the art and faster and provides more visibility. By buying a company like Kelron we are bringing their carriers and lane history into our system that we—going forward—can find trucks better and we can price better and grow our network to be bigger and better.
LM: XPO’s Cold Start program (establishing new operations in new cities) is still going strong, and the company has added four new truck brokerage locations this month in Chicago, Ill., Jacksonville, Fla., Morris County, N.J., and Birmingham, Ala. Can you explain how things are going on that front?
Jacobs: Since last September, we have rolled out 12 cold starts. There are seven in truck brokerage. We announced one this week in Birmingham, Ala. And we have four on the Freight Forwarding side. We are ahead of schedule with these, as our goal was to have five by the end of the year, and we have seven this year already by August.
LM: Is XPO where it wants and needs to be in terms of growing through acquisition?
Jacobs: We are right exactly where we want to be, because we wanted to buy $250 million [in acquisitions] by the end of the year. Between Continental Freight Services and Kelron, we are at about $122 million and are on track for our goal by the end of the year and are a little bit ahead on the Cold Starts.
LM: Let’s talk about your Freight Brokerage business. As always, there is a lot of activity there. What are you seeing lately?
Jacobs: The market is sluggish; let’s not kid ourselves. The amount of economic activity is slow, and the amount of freight is down. Pretty much almost all of the loads being tendered by shippers are going to asset-heavy trucking companies that are number one or number two in the routing guide, with much less flowing over to the spot market. There is less freight in the spot market to compete for right now and there is a little bit of margin pressure as a result of that. It is a temporary phenomenon and part of the cycle. Sooner or later the economy will come back, and there will be more freight and a buoyant amount of brokerage/spot freight to bid on, and we should be very well positioned to compete for that freight as we will have a couple hundred people in Charlotte dialing for diesel all day long. Right now, though, the overall market in equilibrium is kind of flat, and we at XPO have a business plan that is—to a partial extent—insulated from macro conditions because we are so small relative to the whole market. We are growing fast and taking market share, and growing the company and doubling the size of the company so in that type of market we are still able to grow through things like Cold Starts and acquisitions and by supporting our operations with our IT and training and recruiting. Our business plan is basically one which anticipates from the outset that we will all be in different parts of the economic cycles during the plan and over a period of years we will build up a very large company.
LM: What are you seeing on the spot market? Rates seem to be pretty high due to tight truckload capacity.
Jacobs: Capacity is tight but not like it was a year ago. A year ago we were getting loads at the end of the day and we were wondering if were going to be able to cover it…or they were getting turned over to the next day. Now, though, the board is pretty cleaned up by mid-day.
LM: There are a lot of moving parts in the logistics and freight transportation sectors, which come with a lot of worry from companies. What are some of the things you are keeping an eye on that are either encouraging or concerning?
Jacobs: It all boils down to the economy. Truck brokerage is a business of getting trucks to cover the freight. We will all do better when there is greater economic activity and more freight. That is a concern in terms of where the economy is heading. As I said, we have a business plan to navigate through good and bad times, whether it is by growing through Cold Starts which don’t require a lot of capital, intelligent acquisitions that make sense with a clear plan to scale them up, and continue to build up our operations in Charlotte to provide huge access to capacity. Long-term, we still believe that when the economy comes back there will be much less capacity, and companies like XPO will do very well as we have access to a lot of capacity.
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