XPO reports record second quarter results

Freight transportation and logistics services provider XPO Logistics reached the halfway point of 2017 in continued position of strength.

Quarterly revenue was up 2.2% to $3.76 billion and was a record high for the company, as was net income at $47.6 million and earnings per share at $0.38, which were up annually compared to $42.6 million and $0.35 a year ago. And EBITDA for the quarter also hit a new record, heading up to $370.8 million, minus $19.9 million in integration and rebranding costs. XPO said it has upped its full-year adjusted EBITDA target to at least $1.365 billion and a minimum of $1.6 billion for 2018.

For quarterly results by business segment, XPO again reported increases, including:

-Transportation total revenue at $2.41 billion, which was off slightly compared to $2.41 last year, which included $133.4 million in revenue from its since divested North American truckload unit. Revenue was paced by gains in truck brokerage and last mile, and operating income was up 4.4% annually at $160 million. Adjusted operating ratio for LTL came in at 84.6, with net revenue up 4.4% at $395.2 million; and

-Logistics total revenue came in at $1.4 billion, which topped last year’s $133 billion, with gains coming from strong demand for North American and European contract logistics that was offset by a decline in managed transportation revenue and unfavorable exchange rates. European contract logistics gains came from e-commerce and cold chain contracts in the UK and the Netherlands and from e-commerce and industrial in North America. Operating income at $64.3 million was up compared to $51.1 million last year

“We delivered another robust quarter with strong,” XPO Chairman and CEO Brad Jacobs told LM. “We reached a record number for revenue, and organic growth accelerated to 7.5%, up from 4.4% in the first quarter. We closed $1.43 billion in new business in the first half of the year, up 62%, and we built up our global sales pipeline to more than $3.3 billion, a new high water mark.”

On the contract logistics side, Jacobs said XPO continues to grow fast in Europe and North America, growing logistics EBITDA by 15%, with e-commerce and reverse logistics leading the way. He lauded the large amount of e-commerce facility space and expertise, which are in short supply, adding that omnichannel retail for North America supply chain grew 45% for the quarter, with Europe revenue growth up more than 12%.

Much of that growth, he said, came from its European e-commerce and food and beverage customers, with growth primarily coming from the UK, the Netherlands, and Spain.  

North American LTL delivered its best operating ratio in more than 20 years at 84.6%, with an improvement of 90 basis points.

“The pricing environment is good, and LTL contract renewals are averaging price increases of 4.8%, and we implemented a GRI of 4.9% in June, and volumes have accelerated,” he said. “There is good margin out there. Since we acquired the LTL business [from Con-way in late 2015], we have nearly doubled the operating income from $233 million in 2015 to $430 million in the trailing 12 months through June. LTL tonnage per day for the quarter was up 7.1%, which is up annually from 4.8%, and shipment volume is up 3.2%, and weight per shipment is up 3.8%.”    

XPO’s last mile segment, said Jacobs, continues to see what he called remarkable growth, increasing revenue by 14.8%, due to higher volumes from e-commerce customers.

Assessing the economic factors influencing the markets XPO serves, Jacobs said in North America the economic recovery is being led by an industrial revival for the first time in a number of years.

“This is good for our LTL business,” he said. “Retail is growing more slowly, although e-commerce continues to be very strong. Everything related to e-commerce both here and in Europe is going very strong. European manufacturing, retail, and especially e-commerce are all growing faster now than in the first half of the year. This was evident in July, and we are not gearing up for back to school and the holidays.”

In June, XPO announced the pricing of 11,000,000 shares of its common stock in a registered underwritten offering at $60.50 per share.  Of the 11,000,000 shares in the offering, 5,000,000 will be sold directly by XPO to the underwriters at closing, and 6,000,000 will be subject forward sale agreements.

Jacobs said those funds are likely to be utilized in connection with future M&A activity.

“For the first several years of the company’s evolution, we bought 17 companies, including two big ones in 2015 with Con-way and Norbert Dentressangle,” he said. “After those two deals, we decided to digest and integrate and optimize and get one common culture and one common system around the world, with one common brand and unified sales force in the market. That integration is winding down…and we are now going back to the M&A market.”

He said XPO is making this move for a few reasons. One is to create additional benefits and capabilities for its customers, and to create significant shareholder value for the owners of the company. While no M&A deal is likely over the next couple of months, he said XPO is in the early stages of the exploration process.

“We are mainly looking at businesses that are in our existing service lines or ones that are closely related to what we do,” he said. “And we are looking at deals that are compelling, both strategically and financially.”