XPO Logistics, Inc. (XPO) on Q1 2021 Results - Earnings Call Transcript
Operator: Welcome to the XPO Logistics First Quarter 2021 Earnings Conference Call and Webcast. My name is Melissa, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. . Please note, this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of the applicable securities laws, which by their nature involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. For instance, there can be no assurance that the company's planned spin-off of its Logistics business will occur as currently contemplated or at all. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release or made on this call are made only as of today and the company has no obligation to update any of these forward-looking statements, except to the extent required by law.
Brad Jacobs: Thank you, operator. Good morning, everybody. Thanks for joining our conference call. With me today in Greenwich are David Wyshner, our CFO; Matt Fassler, our Chief Strategy Officer; and from London, Malcolm Wilson, our current CEO of XPO Europe and future CEO of the planned spin GXO. As you saw, we had a tremendous first quarter that beat expectations and gave us a very strong start to 2021. On a year-over-year basis, our first quarter revenue was up 24% to $4.8 billion, which is an all-time high, not just for a first quarter, but for any quarter. Our revenue includes 22% growth from our transportation segment where the truck brokerage market is white-hot and the LTL environment is coming back strong. And in logistics, our revenue growth was a hefty 27%. Our logistics segment also had a great first quarter for sales, with a number of large contract wins. Company-wide we set new first quarter records for both net income and adjusted EBITDA. Both of our segments generated robust EBITDA in the first quarter, leading to our third consecutive quarterly record. Our $443 million of adjusted EBITDA was a year-over-year increase of 33%, and our first quarter adjusted EBITDA margin of 9.3% was up from the prior year by 70 basis points. Technology and operational excellence were the two big drivers here. Even with the gains we've been reporting, we're confident that we're in the early innings of margin improvement. On the back of our first quarter beat and considering the optimism we're hearing from our customers, we significantly raised our full year 2021 adjusted EBITDA guidance to a range of $1.825 billion to $1.875 billion. Our LTL business in North America is on a solid upward trend. Tonnage per day in LTL was up 3.7% in the quarter compared with a year ago, and yield ex fuel was up 4.2%. Our LTL adjusted operating ratio ex real estate improved to a first quarter record of 84.3%, which was 220 basis points better than a year ago. In truck brokerage, the story is growth, growth and more growth. Three months ago, we reported a record fourth quarter for our brokerage business, and now we've driven results higher to top it with another record quarter.
Malcolm Wilson: Thank you, Brad. Demand for our logistics services is very strong due to a combination of secular tailwinds and our company's positioning within this environment. The three big mega trends of outsourcing, e-commerce, and warehouse automation are driving the double-digit revenue and EBITDA growth in our logistics. Outsourcing has been a consistent trend for years, but it accelerated as a result of the pandemic. Large companies have become more aware of both the critical importance of supply chain continuity to their success and the potential vulnerability of handling logistics completely in-house. We collaborate strategically with customers to help them redesign their supply chains, and we give them greater visibility and flexibility through our technology. This sustained rise in e-commerce we're seeing is a secular shift in consumer buying behavior. We can all relate to this. Right now, order fulfillment times are being compressed, most notably in the space. What used to be a five-day logistics process is now down to one day or less. Advanced automation and intelligent machines are cost-effective ways to meet these expectations.
David Wyshner: Thanks, Malcolm, and good morning, everyone. Today, I'd like to discuss our first quarter results, our balance sheet and liquidity, and our updated outlook for 2021. In the first quarter, we generated revenue of $4.8 billion and adjusted EBITDA of $443 million. The revenue number reflects a year-over-year increase of more than 20%. Adjusted EBITDA is up more than 30%, and both figures are higher than we expected at the beginning of the quarter. Our record Q1 adjusted EBITDA reflects commercial momentum and powerful execution across our business units in a strong ongoing economic recovery. As Brad mentioned, revenue grew 24% year-over-year in the first quarter. Our U.K. logistics acquisition contributed 3 points of revenue growth and foreign exchange contributed three points. As a result, our organic revenue growth in the quarter was 18%. Our revenue growth translated into even stronger adjusted EBITDA growth of 33%, and our EBITDA margin increased 70 basis points year over year. We had limited COVID impact on first quarter EBITDA last year, so our year-over-year growth this year largely reflects our strong operational execution and favorable market dynamics. Both of our segments made a strong contribution to our adjusted EBITDA growth. Logistics adjusted EBITDA increased by 28% in the first quarter and transportation adjusted EBITDA was up 36%. We continue to see robust consumer demand and a more modest rebound in industrial activity. And as revenue increased, we benefited from the operating leverage inherent in our business and the cost reduction actions we took last year. Weather also affected us in February, but the negative impact in the quarter was minimal. Matt will review our segment detail in a few minutes.
Matthew Fassler: Thanks, David. I'll review the first quarter operating results starting with our transportation segment. We had a very strong quarter in North American LTL, driven by the recovery in the U.S. economy, a healthy pricing backdrop, and our ongoing progress improving our pricing and operating disciplines. Our LTL revenue growth accelerated to 7.1% and revenue ex fuel grew by 6.7%. These were our strongest year-on-year growth rates in LTL since we acquired the business in 2015. We also grew tonnage per day by 3.7% year-over-year, which was a pickup from the fourth quarter of 2.1 percentage points. Shipments per day rose 2.4%, accelerating by 3.1 percentage points from the fourth quarter. Tonnage improved in five of our six largest verticals, which together comprise over 80% of our volume. Retail and consumer verticals remained stronger than industrial, but trends in industrial continued to improve, most notably late in the quarter. Tonnage and shipment count both outperformed typical seasonality. Our weight per day ticked down by 10 basis points from Q4, outperforming the typical Q1 decline of 90 basis points. Yield excluding fuel rose 4.2% year over year, which was a sharp acceleration from the 1.5% increase we posted in the fourth quarter. Revenue per shipment excluding fuel grew 5.5%, improving from the 3.8% growth we had in the fourth quarter. Growth in revenue per day excluding fuel accelerated to 8.4%, up 4.7 percentage points from Q4. Our LTL adjusted operating ratio of 82.6% compared favorably to 83.4% a year ago. Excluding real estate gains, our adjusted OR improved to 84.3%, which was 220 basis points better than the first quarter a year ago. Our adjusted OR ex real estate gains also improved sequentially by 20 basis points. And adjusted operating income ex real estate increased by 23% year-over-year. Importantly, we're seeing ongoing improvements in productivity in LTL. Our load factor increased by 2.3% year-over-year, and we reduced empty miles by 6%. And we were 4.8% more efficient in pickup and delivery than we were in Q1 last year aided by our XPO Smart labor management tools. We're firmly on track to deliver at least $1 billion of adjusted EBITDA in LTL next year driven by both revenue growth and continued improvement in our operating ratio. Turning to truck brokerage. Our North American truck brokerage business delivered another spectacular quarter. On a year-over-year basis, we generated an 83% increase in revenue and more than doubled net revenue with an increase of 132%. Loads per day increased by 25%, once again sharply outpacing the market, and net revenue margin rate increased by nearly 400 basis points to 18.6%. We controlled costs well and earnings growth in truck brokerage substantially outpaced an increase in net revenue. Truckload capacity was quite tight in Q1 with a high load-to-truck ratio. Our technology team and carrier network working together allowed us to find capacity for our customers. I want to take a step back for a minute to last year's third quarter in brokerage, when we made the decision to invest in headcount at a time when our competitors were pulling back. This may have seemed counterintuitive at the time, given the environment as it was, but we had a plan to be first out of the gate in the recovery, and now it's paying off. Our new hires are ramping productivity significantly faster than in the past, aided by XPO Connect. And over time, as you heard from Brad earlier, our productivity and brokerage has increased dramatically. Carrier and customer adoption of XPO Connect continues to surge. We approached 400,000 downloads of the platform's mobile app in Q1, representing 30% growth quarter-over-quarter and tripling the cumulative number of downloads year over year. In the first quarter, we topped 81,000 registered carrier accounts on XPO Connect, up nearly 50% year-over-year, and the number of customer accounts on the platform grew sequentially from the fourth quarter to the first quarter of 2021 by 16%. We're also securing volumes through API technology at a profitable clip. Looking at our transportation segment overall, ear-over-year, we increased first quarter revenue by 22% and increased adjusted EBITDA by 36%. Our adjusted EBITDA margin in the segment was 11.5% compared with 10.3% a year ago. We project 30% to 34% growth in full-year adjusted EBITDA in the Transportation segment, which is above our prior outlook of 24% to 29%. Turning to our logistics segment. We increased revenue by 27% in the first quarter year-over-year. Organic revenue growth accelerated to 13% from 9% in the fourth quarter. The remainder of our revenue growth reflected our U.K. acquisition and favorable FX conversion. We saw exceptionally strong growth from our customers in the omnichannel retail, CPG, and technology verticals. The holiday peak was not only an early peak, it was an extended peak as well, and our warehouse operations were running at a high velocity for our customers in consumer-facing businesses. These sectors — e-commerce, reverse logistics, consumer tech — continue to represent enormous new revenue opportunities for us. In Europe, our logistics business generated 15% organic growth, which underpinned the 38% year-over-year increase in our revenue. In North American logistics, we grew revenue by 9% over last year. Labor is still tight, but we're managing it well. We continue to see 5% to 7% productivity improvement with XPO Smart, our proprietary suite of intelligent analytics and labor management tools. This technology is rolled out in most of our North American warehouses and more than half of our European sites. Globally in logistics, our adjusted EBITDA in the quarter was 28% higher than in Q1 last year, and our adjusted EBITDA margin increased 10 basis points to 8.5%. As David mentioned, we expect annual adjusted EBITDA growth in this segment. We expect it to grow 28% to 32%, which is above our prior forecast of 24% to 29%. We're pleased that the strong momentum we achieved in the first quarter continued through April. The industrial rebound is helping our LTL business, with a lot more runway to the recovery. The pricing environment remains helpful, and it's showing up in our yield, which is outperforming typical seasonality. In brokerage, capacity is still tight, and the volume backdrop remains fantastic. In logistics, new contracts are on the rise. Malcolm gave you a sense of just how exciting our growth prospects are in Logistics. The operations we acquired in the U.K. and Ireland are ramping up volumes as COVID restrictions are lifted. We're also seeing the resumption of more normal activity in Italy. We're continuing to bring operations online from new business wins in the U.S. as well, and the global tailwind from e-commerce is creating demand for XPO Direct, our shared space distribution network in North America. While we're happy we've delivered a strong quarter, we're also focused on delivering sustainable results for the long term, and increasingly we're collaborating with customers on ESG strategies. This melds with our own pursuit of environmental sustainability, social responsibility, and good governance, and our commitment to diversity, equity, and inclusion. We prioritize these parts of our culture because it's good for our employees and communities and because it helps make XPO a great place to work. When we use our expertise to further our ESG goals, it resonates with like-minded customers who share these values. Within our company, we're tracking about 40 ESG initiatives with a new scorecard that documents our progress. The metrics are largely operational at 25% of the long-term incentive comp for our senior execs is tied to this scorecard. We have a number of initiatives underway to help our customers achieve greener supply chains. For instance, we've had a massive rollout of LED lighting in our warehouses, and we're constantly focused on reducing empty miles in our transportation businesses. We're a leader on alternative fuel vehicles in key European markets where we have over 250 natural gas-powered trucks in our fleet across France, the U.K., and Spain. We've also invested in improving the sustainability of our packaging, waste management, and recycling. I'll close with a few of the accolades we received in the quarter. We were recently named a Forbes Best Company to Work For in Spain for the third straight year. Intel recognized us with their Supplier Achievement Award for our COVID-19 response. And three XPO executives — Ashfaque Chowdhury, Drew Wilkerson, and Erik Caldwell — were recognized by Supply & Demand Chain Executive magazine for their accomplishments in the industry. So, altogether an outstanding quarter for our transportation business, our logistics business, and our progress on the spin with much more to come. With that, we'll take your questions. And operator, over to you.
Operator: Thank you. Our first question comes from the line of Tom Wadewitz with UBS. Please proceed with your question.
Thomas Wadewitz: Yeah, good morning and congratulations on the strong results. Wanted to ask you a bit about pricing and kind of how you think about the contour of that this year. I guess two components. So one would be on LTL pricing. Obviously, you saw a nice acceleration in first quarter. How do we think about where that can go to? If it's 4% in first quarter, can it be 6%, 7% when you get to second half of the year, or is that asking for too much? And then I guess the second question would -- well, actually, let me just leave that and then I'll come back on the second one.
Matthew Fassler: Tom, the LTL pricing environment is strong. You commented on the acceleration that we noted in our yield in the first quarter versus the fourth quarter. Obviously, the market is tight. There's lots of demand for our capacity. Our price increases on contract renewals continue to move in the right direction both quarter-over-quarter and month over month and into the second quarter. So that's a very helpful harbinger of the yield outlook for the rest of the year which is a good one.
Thomas Wadewitz: So then the second question would be on logistics. I think it's quite evident on transport that there's a very favorable dynamic, supply-demand is very tight, and that's benefiting pricing. Is there any impact in logistic pricing? I know it's a very different market. Are you seeing stronger pricing? Would you expect stronger margin performance in logistics contracts you're signing now, or are those markets kind of just disconnected in terms of some of the tightness in pricing and transport and how that could affect whether there's tightness or more pricing in logistics? Thank you.
Matt Fassler: Tom, one of the things we love about the logistics business is its consistency. That's evident in pricing and it's evident in the kind of financial results that we're able to generate in a variety of backdrops. So, we're able to manage our price movements very well in that business, and you shouldn't expect to see any impact in logistics results based on the movement that you're seeing in transportation markets today. Obviously, to the extent that there are indicators of a strong demand backdrop that's good for the logistics business as it is for transportation, but generally a constructive backdrop there as well.
Thomas Wadewitz: Okay, great. Thank you.
Brad Jacobs: Thank you.
Operator: Thank you. Our next question comes from the line of Hamzah Mazari with Jefferies. Please proceed with your question.
Hamzah Mazari: Hey, good morning. My question is on the Logistics GXO side. You've talked about getting to double-digit EBITDA margins. Could you just remind us what the big levers there are to get there and your confidence level in the timeframe?
Matt Fassler: Sure. First of all, labor productivity. We have our Smart workforce management platform. It drives 5% to 7% labor productivity per annum as we roll it out. That rollout is still maturing in the U.S. and is really in the middle innings at most as you think about Europe. So, there's lots of headway for us to make progress in terms of labor productivity. There's organic growth at existing sites, particularly when you think about our sites with exposure to e-commerce, which is our fastest-growing area right now. That will help us drive operating leverage. There's, of course, the acceleration of the rollout of automation and robotics, a huge part of our value proposition to our customers. There's tremendous new business opportunities. Obviously, we seek out lucrative business opportunities and the incremental revenue helps us drive operating leverage as well. Finally, XPO Direct continues to season and continues to contribute to our profit outlook. So, really, I think those five drivers are going to be the key for our operating leverage and logistics going forward.
Hamzah Mazari: Got it. And just my follow-up question. I'll turn it over. Again, just on logistics. Could you remind us how you think about the reoccurring revenue base in the logistics segment? I know customer retention is high, but when you do lose a customer, do they take that in-house? Do they go to a competitor? Just give us a sense of the reoccurring revenue base in that business.
Matt Fassler: The renewal and retention rates in contract logistics are very strong. Many of our largest customers have been with us for many, many years. We've had multiple renewals with them, and we expect that to remain the general cadence of the business. There are some instances where we part ways and typically come to an arrangement and then we move on. But generally, the retention and renewal dynamics are very powerful in our logistics franchise.
Hamzah Mazari: Great. Thank you so much.
Operator: Thank you. Our next question comes from the line of Brandon Oglenski with Barclays. Please proceed with your question.
Brandon Oglenski: Hey. Good morning, everyone, and thanks for taking my questions. So I know we've talked about this a little bit in the past on past calls, but sounds like the split's coming along much closer now. So can we just revisit the priorities for each business post-split? I think we're getting some more information from you guys, too. It sounds like investment-grade balance sheets might be in the future as well. So can you talk to maybe the priorities from the capital side as well as maybe a resumption of M&A?
Matt Fassler: Sure, Brandon. Good morning. So, in terms of capital allocation, we're always looking for the best ROI from the cash that we generate from the business. Our current focus, to your earlier point, is effectuating the spin which is going to create lots of value, then paying down debt to become investment-grade, and then obviously in parallel to that at all times is investing in CapEx. Those are our priorities for capital.
Brandon Oglenski: Okay. And does M&A become a bigger piece of the story then once separate?
Matt Fassler: Accretive M&A and stock buybacks, each of those is really always an option. We're always aware of what's happening in the market. We'll announce any moves after the fact, and we're very highly disciplined, obviously, as we think about those opportunities.
Brandon Oglenski: Okay. And then a quick follow-up on the margin question in Logistics. I think you guys brought on a pretty large portfolio of U.K. contracts this quarter. We thought it was going to be potentially dilutive to margins, but it looks like you guys have pretty good performance there. So can you speak to how that business has been integrated?
Malcolm Wilson: Yeah. Please allow me to just give an update on that. It's Malcolm here. So, in fact, new business coming in has been a combination of brand new customers. So, we've had some really exciting new customers coming in, big whale type of size contracts with established customers and brand new customers, and also we've brought in, in the quarter, the acquisition, the tactical acquisition of the K&N business, and that's come with some real blue-chip customers. Just to remind, that came with new verticals. So, in tech, the e-comm, food services, and beverages, and we've seen very strong synergies coming from that project. We've also seen a lot of synergies coming from customers. There must have been a pent-up demand in those verticals because we've seen a very large sales flow of new opportunities coming into us. And lastly, really, we've renewed and reviewed through some of the existing agreements. So those have all been margin accretive, and I think that's really giving the background that you're describing.
Brandon Oglenski: Appreciate the feedback, Malcolm.
Brad Jacobs: Thank you.
Operator: Thank you. Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.
Amit Mehrotra: Thanks. Morning, everybody. I wanted to go back to the comment around the GXO leverage and just how this will work. I think the way these things have worked in the past is like SpinCo draws down new debt, the proceeds from that debt are dividended back to RemainCo, which then uses the proceeds to offset dilution. Is that the right pathway and do you expect the dilution at RemainCo to largely be offset pro forma for the spin of GXO?
David Wyshner: Good morning. It's David. The way you're thinking about it is the right way to think about it. We're confident that GXO will be investment grade on day one. We haven't announced a precise capitalization plan yet, and we're still talking to the rating agencies. But as you say, the remainder of the debt will stay with XPO RemainCo, and we want to drive RemainCo to being investment grade soon. And from a process standpoint, to the extent that we issue debt for GXO, some or most of that cash would be dividended up to XPO to pay down RemainCo debt. And so that will allow us to reduce the leverage. In addition to that, we generate a lot of cash and we're prioritizing the allocation of that cash to pay down debt. And to me what's really exciting is that if you look at the Q1 balance sheet for the combined company, net leverage is at 2.5 times our current EBITDA guidance for this year. And that means that the aggregate amount of debt that needs to be allocated between the two companies is manageable and really positions us well for GXO to be investment grade on day one and for XPO RemainCo to move rapidly to being investment grade.
Amit Mehrotra: Got it. So it's not really an offsetting of dilution but really a transfer of the debt load from XPO to GXO because of the recurring revenue stream and the asset-light intensity of GXO. Correct me if I'm wrong on that but I'll move on to my follow-up if it's okay. So Matt, I think the operating leverage in the business will tick up in the second quarter just given more growth coming from LTL. I think that's kind of a consolidated dynamic. But if I just look at Logistics, and I think this is kind of important as it relates to GXO, this is an asset-light business. I assume most of the D&A is amortization of intangibles as opposed to depreciation of the asset base. But if I look at the Logistics business, given that asset-light nature, I guess ROIC is the best way to look at that business. And so is there any way you or Malcolm or somebody could talk to us about what these new contracts that they're bringing on — they’re humongous — are underwriting from an ROIC perspective? I guess you look at it on a project basis because of the contract nature of the business, but any help there in terms of what the ROIC is being underwritten at in terms of what these new contracts are coming on?
Matthew Fassler: Sure. You're absolutely right. We look at every project at the project level. We solve for pre-tax and after-tax ROIC. We look at the IRR. We look for a return on capital at the project level of at least 20% and approaching 30% over the life of the first contract. We get paid back and more on the first contract, assuming no renewals. Obviously, we have a very strong track record of generating renewals, and we're extremely disciplined about the kind of new business we take in and the financial profile of the business that we bring in. That's critical to our success in contract logistics.
Amit Mehrotra: So, on an unallocated basis, you're saying the ROIC of Logistics is 20% to 30% and on a fully allocated basis it's what 10% to 15%?
Matthew Fassler: We'll share more of those numbers with you as the Form 10 comes out, but at the project level, that's what you tend to see. Then obviously there's some G&A, et cetera, that you layer on. We obviously think about all the associated overhead, any incremental overhead as we consider bringing on a customer or a new project.
Amit Mehrotra: Okay. Thank you very much, guys. Appreciate it.
Brad Jacobs: Thank you.
Operator: Thank you. Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Chris Wetherbee: Hey, thanks. Good morning. Wanted to touch on the EBITDA guidance and maybe a little bit about seasonality. I think 2Q is expected to kind of move back into the mid-20s range, which I think is typical from a seasonal perspective. Obviously, a strong outperformance in the first quarter. So I guess I just wanted to make sure I understood some of the moving parts in terms of cost, maybe revenue growth, obviously the comps are fairly challenging, that sort of leads going from the significant outperformance from an EBITDA seasonality standpoint in 1Q to maybe something that's a little bit more normal, and do you think that kind of lasts for rest of the year? So just some helpful color around the seasonality of the profits of the business.
Matt Fassler: Chris, we had a really, really good first quarter in a terrific environment. We're going to have a very strong second quarter. We framed the seasonality for you. David did, he talked about mid-20s as a share of the year. Obviously we expected a very good year as well. We talked about the EBITDA guidance for the Europe for the company overall and for each of the businesses, and we see obviously a very strong performance in the second quarter, very good trends both in Transportation and Logistics.
Chris Wetherbee: So nothing specific that's changing materially from 1Q to 2Q about the business environment or otherwise that maybe sort of changes the dynamic of seasonality?
David Wyshner: No particular changes. Obviously, the year-over-year comps are strange this year because of the pandemic last year, but when we look at the year overall, we’ve delivered 33% EBITDA growth in the first quarter, and that's right at the midpoint of what we're expecting for the year as a whole. So, I think there's a consistency there between our first quarter results and what we're expecting for the full year on a year-over-year basis. The comps will be easier in the second quarter because of the pandemic effects last year and will be tougher in the second half.
Chris Wetherbee: Okay. Okay. That's helpful. I appreciate it. And then if you guys could help maybe share -- you mentioned some of the leverage numbers on the EBITDA guidance as it stands right now and I think you've talked to the rating agencies recently. So what does investment grade look like for GXO in terms of leverage and maybe how do we think about that for both companies I guess? Any sort of guidance that you've gotten or helpful color would be interesting.
David Wyshner: We're really still working through the details of that, and we expect to have more details around that soon. What I would emphasize is that we're confident that GXO can be investment grade on day one and that would allow us to -- give us the flexibility to issue some debt that GXO can support and still be investment grade, and dividend those funds across to XPO to reduce the amount of net leverage remaining at XPO following the spin.
Chris Wetherbee: Okay. Great. Thanks for the time. Appreciate it.
Brad Jacobs: Thank you.
Operator: Thank you. Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets. Please proceed with your question.
Todd Fowler: Great. Thanks and good morning. The Logistics pipeline sounds very healthy, obviously very strong right now as we look out to the rest of the year. Also we understand that there's some benefit on the comps from the acquired Kuehne + Nagel business. But how are you thinking about Logistics revenue growth with where the pipeline is at? Basically, when does the pipeline start to translate into revenue maybe for the remainder of '21 and then some thoughts on kind of what you'd expect for a normalized top line growth rate in Logistics beyond '21?
Matthew Fassler: Sure. So, the business that we spoke about today, some of it comes online later this year, more of it comes online in 2022. That said, there's new business that we underwrote and signed previous to today, which we've discussed and signed prior, which is going to flow in, obviously, to revenue in the second quarter, third quarter, et cetera. So, there's a very nice, consistent flow of revenue from new business meeting its way into the -- into our logistics operations. In terms of the long-term cadence of logistics revenue, it's certainly at least a high single-digit growth rate is the algorithm that we've spoken about over time. And I think that's a pretty good way to think about the long-term revenue algorithm for contract logistics.
Todd Fowler: Okay. Great, Matt. And then as a follow-up. Obviously, some advantage on the decisions you've made on the brokerage side to add headcount into the market. The volume growth there is just exceptionally strong right now. How do you think about the stickiness of some of that business? I mean once you're handling some of that volume, is that more transactional that if we start to see the market become more balanced at some point in the future that reverts back to a contracted or an asset-based carrier, or how should we think about some of the success that you're having in the strong brokerage top line and volume growth that you've seen recently? Thanks.
Matthew Fassler: We have a terrific customer base, we have terrific people, and we have terrific technology. And we've delivered for those customers during this very tight market. We expect the strength of the franchise to continue to resonate through the cycle and really across the vagaries of any truck brokerage cycles. We feel exceptionally good about the durability of the franchise and the sustainability of strong results relative to the market in brokerage.
Todd Fowler: Thanks for the time.
Brad Jacobs: Thank you.
Operator: Thank you. Our next question comes from the line of Scott Schneeberger with Oppenheimer & Co. Please proceed with your question.
Scott Schneeberger: Thanks very much. I'm going to ask about last mile. I know it's small. It doesn't get a lot of airtime anymore. But looked like a really strong quarter. Would love if you could elaborate on that, both in North America and in Europe. Thanks.
Matthew Fassler: It was. It was a terrific quarter for last mile. Focusing on North America for a moment. Demand for heavy goods is still very, very strong. Our revenue growth was 22% year over year, and importantly, we're continuing to drive volume through our network of 85 last mile hubs. We're leveraging those facilities and their proximity to population centers around the U.S. Recall that we're the leading outsourced provider of last mile logistics for heavy goods and the largest provider for many of the leading retailers and e-tailers. In Europe this business is at an earlier stage of its development, but the results there were outstanding, stronger growth in general in last mile in Europe than we have in the U.S. So very strong quarter for last mile in both regions, Scott.
Scott Schneeberger: Great. Thanks on that. And then on XPO Direct in contract logistics, I'm curious -- congratulations on a really strong first quarter with these wins. How is XPO Direct affected and how are you progressing towards your long-term objectives there?
Matthew Fassler: XPO Direct is doing really well. It obviously outgrew the North American business nicely. It's a critical service for emerging e-commerce players, direct to consumer players who don't have their own distribution capacity and are seeking to build their connectivity with consumers. It's a very differentiated offering in the market, and it's a real nice element of the growth story that we have in contract logistics.
Scott Schneeberger: Thanks very much.
Brad Jacobs: Thank you.
Operator: Thank you. Our next question comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question.
Michael DiMattia: Hi, good morning. This is Michael DiMattia on behalf of Allison. Strong quarter in LTL. Just had a question on strategic priorities for the business with RemainCo post the spin. And also as we look at over the next three to five years, what a realistic OR for this business can be as it gets more attention? Can it sustainably be a 75 to 80 OR business?
Matthew Fassler: The strategic priority for LTL is obviously to drive more EBITDA, and that's our number one priority, to simplify it for you. We have an initial goal for 2022 of at least a $1 billion of adjusted , as I said in my earlier remarks, and that's going to result from a combination of revenue and operating leverage. Remember that in LTL, we have a number of very high potential technology efforts underway. We're working on our labor optimization through XPO Smart. Obviously, our route optimization impacting both linehaul and P&D, and you saw some of the impact of that manifest itself in the first quarter. And then obviously the work we're doing on LTL pricing elasticity, optimizing our pricing as we get better and better data on the market, and to use our own data more effectively. Each of these technology initiatives has lots of runway and is going to help us drive our profitability going forward. If higher OR was good OR, I'd say the sky is the limit, but I think you get my point. We have lots of opportunity to improve our operating ratio further from here in LTL.
Michael DiMattia: That sounds great. Thank you.
Operator: Thank you. Our next question comes from the line of Jason Seidl with Cowen. Please proceed with your question.
Jason Seidl: Thank you, operator. Gentlemen, good morning. Two quick questions one on the LTL front. That seems to be a little bit more weighted towards the industrial manufacturing side of the economy. That's coming back, but it's still slower than the consumer. How should we think about tonnage growth as we move into the back half of the year and then early '22?
Matthew Fassler: Obviously, Jason, tonnage growth in the second quarter is going to look amazing. Think about our compare. But the good story here, we obviously just finished April, so had a fresh look at the numbers. The March -- the April weight per day compared to March weight per day relative to typical seasonality was slightly better. So, it's not just easier comps. There's also intrinsic, underlying acceleration in that LTL business. So, we'll have very, very strong tonnage growth in the second quarter and healthy tonnage growth we think in the second half of the year as well. Obviously, the comparisons normalize a bit, but we have a very good outlook for tonnage.
Jason Seidl: Okay. That's a good color. I want to also switch onto logistics side and how we should think about XPO sort of returns as they open up more and more of sort of these modern facilities that feature more and more robotics. How's the margin profile on a new facility like that compared to a more legacy facility that doesn't use that type of technology?
Matthew Fassler: Every project is different. As I said in the answer to an earlier question, we underwrite every project considering the capital that we deploy, the duration of the contract, and all of those considerations. And whatever the automation is, whatever the robotic component, we still have the same financial framework for evaluating the project. So we underwrite a project if it's promising for our customer and financially promising for us and for our shareholders, and we work with every proposal to ensure that it will deliver on that potential regardless of the amount of automation and technology. It just so happens, we have lots of very compelling opportunities to introduce advanced automation and robotics. It's one of the things that our customers are looking to us for. It's one of the big drivers of outsourcing in contract logistics. It ties in very well obviously to e-commerce and omnichannel retail. So all those themes are really converging. And obviously, we're considering that as we underwrite our financial proposition. And keep in mind, automation becomes more and more cost effective over time. And the lead we have in implementing this automation helps differentiate us from the rest of the marketplace, both in delivering for customers and in delivering the associated financials for shareholders.
Jason Seidl: So I guess the best way to think about it is the contracts are done on a contract-by-contract basis and you pretty much put in good returns to make sure that you're covering your investments, but the technology that you're employing in the marketplace is going to help you win more and more awards as we go forward.
Brad Jacobs: You nailed it.
Jason Seidl: All right, perfect. Thanks, guys. Appreciate it.
Brad Jacobs: Thank you.
Operator: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Jacobs for any final comments.
Brad Jacobs: Thank you, operator. So let me conclude by highlighting: in LTL, we improved the operating ratio by 220 basis points; in truck brokerage, we grew loads by 25% and net revenue by 132%; in logistics, we signed a bunch of whales, massive contracts with premier customers, both here in the United States and in Europe, each worth hundreds of millions of dollars over the life of the contract, one worth significantly more than that; and in logistics, we're benefiting from three powerful growth drivers, outsourcing, warehouse automation, and e-commerce. And finally, based on the Q1 beat and the strength we're seeing in April, we raised guidance significantly for the full year. We raised the new low end above the prior high end. So, I'd like to thank the team. None of these accomplishments were done by any one specific person. It's always the team. So XPO, good job. Thank you. See you in 90 days.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Related Analysis
XPO Logistics: A Comprehensive Financial Analysis
- Earnings per share (EPS) of $0.792 fell short of the estimated $0.89, indicating a miss in earnings expectations.
- Revenue of $2.053 billion surpassed the estimated $2.020 billion, showcasing higher-than-anticipated revenue generation.
- Significant financial metrics include a price-to-earnings (P/E) ratio of 37.7 and a debt-to-equity ratio of 2.53, reflecting investor confidence and significant use of debt.
XPO, listed on the New York Stock Exchange as NYSE:XPO, is a prominent player in the logistics and transportation sector. The company provides supply chain solutions, including freight transportation and last-mile delivery services. XPO competes with other logistics giants like FedEx and UPS, striving to maintain its position in a highly competitive market.
On October 30, 2024, XPO reported earnings per share (EPS) of $0.792, which fell short of the estimated $0.89. Despite this, the company's revenue for the period was $2.053 billion, surpassing the estimated $2.020 billion. This indicates that while earnings were below expectations, XPO managed to generate higher-than-anticipated revenue.
XPO's financial results for the third quarter of 2024 show a positive trend. The company reported diluted earnings from continuing operations per share of $0.79, up from $0.72 in the same period of 2023. Additionally, adjusted diluted earnings from continuing operations per share increased to $1.02, compared to $0.88 in the previous year, highlighting growth in earnings.
The company's financial metrics provide further insight into its performance. XPO has a price-to-earnings (P/E) ratio of 37.7, indicating investor confidence in its earnings potential. The price-to-sales ratio of 1.73 suggests the market values its sales at 1.73 times its revenue. The enterprise value to sales ratio is 2.20, reflecting the company's total valuation compared to its sales.
XPO's financial health is also evident in its enterprise value to operating cash flow ratio of 20.46, showing how its valuation compares to cash flow from operations. With an earnings yield of 2.65%, XPO offers a return of 2.65% on its earnings relative to its share price. The debt-to-equity ratio of 2.53 indicates significant use of debt, while a current ratio of 1.06 suggests the company can cover its short-term obligations.
XPO Logistics: A Comprehensive Financial Analysis
- Earnings per share (EPS) of $0.792 fell short of the estimated $0.89, indicating a miss in earnings expectations.
- Revenue of $2.053 billion surpassed the estimated $2.020 billion, showcasing higher-than-anticipated revenue generation.
- Significant financial metrics include a price-to-earnings (P/E) ratio of 37.7 and a debt-to-equity ratio of 2.53, reflecting investor confidence and significant use of debt.
XPO, listed on the New York Stock Exchange as NYSE:XPO, is a prominent player in the logistics and transportation sector. The company provides supply chain solutions, including freight transportation and last-mile delivery services. XPO competes with other logistics giants like FedEx and UPS, striving to maintain its position in a highly competitive market.
On October 30, 2024, XPO reported earnings per share (EPS) of $0.792, which fell short of the estimated $0.89. Despite this, the company's revenue for the period was $2.053 billion, surpassing the estimated $2.020 billion. This indicates that while earnings were below expectations, XPO managed to generate higher-than-anticipated revenue.
XPO's financial results for the third quarter of 2024 show a positive trend. The company reported diluted earnings from continuing operations per share of $0.79, up from $0.72 in the same period of 2023. Additionally, adjusted diluted earnings from continuing operations per share increased to $1.02, compared to $0.88 in the previous year, highlighting growth in earnings.
The company's financial metrics provide further insight into its performance. XPO has a price-to-earnings (P/E) ratio of 37.7, indicating investor confidence in its earnings potential. The price-to-sales ratio of 1.73 suggests the market values its sales at 1.73 times its revenue. The enterprise value to sales ratio is 2.20, reflecting the company's total valuation compared to its sales.
XPO's financial health is also evident in its enterprise value to operating cash flow ratio of 20.46, showing how its valuation compares to cash flow from operations. With an earnings yield of 2.65%, XPO offers a return of 2.65% on its earnings relative to its share price. The debt-to-equity ratio of 2.53 indicates significant use of debt, while a current ratio of 1.06 suggests the company can cover its short-term obligations.
TD Cowen Lowers XPO Price Target to $142, Maintains Buy Rating Amid Softer Industrial Economy
TD Cowen analysts revised their price target for XPO (NYSE:XPO) to $142, down from $143, while maintaining a Buy rating on the stock.
The revision comes after the firm adjusted its model to reflect quarter-to-date performance. August's tonnage per day showed a 4.6% decline, which fell short of seasonal expectations due to XPO's significant exposure to the weakened industrial economy. As a result, the analysts lowered volume assumptions for the second half of the year.
Despite the volume adjustments, the analysts remain confident in the company's ability to maintain yield and margin targets, citing the effectiveness of XPO’s cost and yield optimization efforts. Based on an estimated $5.80 in earnings per share for 2026, and maintaining a 24.5x valuation multiple, the new price target is set at $142.
TD Cowen Lowers XPO Price Target to $142, Maintains Buy Rating Amid Softer Industrial Economy
TD Cowen analysts revised their price target for XPO (NYSE:XPO) to $142, down from $143, while maintaining a Buy rating on the stock.
The revision comes after the firm adjusted its model to reflect quarter-to-date performance. August's tonnage per day showed a 4.6% decline, which fell short of seasonal expectations due to XPO's significant exposure to the weakened industrial economy. As a result, the analysts lowered volume assumptions for the second half of the year.
Despite the volume adjustments, the analysts remain confident in the company's ability to maintain yield and margin targets, citing the effectiveness of XPO’s cost and yield optimization efforts. Based on an estimated $5.80 in earnings per share for 2026, and maintaining a 24.5x valuation multiple, the new price target is set at $142.
XPO Logistics Gains 10% on Q1 Beat
XPO Logistics (NYSE:XPO) saw a surge of over 10% in its shares intra-day today, driven by a better-than-expected Q1 earnings report. The company reported earnings per share (EPS) of $0.81, outperforming the consensus estimate of $0.67. Revenue reached $2.02 billion, surpassing the estimated $2.01 billion.
The company's adjusted EBITDA margin increased to 20.9%, compared to 16.3% in the same period last year. CEO Mario Harik highlighted that the strong Q1 financial results exceeded expectations, providing a solid foundation for 2024. XPO Logistics achieved year-over-year growth of 6% in revenue, 37% in adjusted EBITDA, and 45% in adjusted diluted EPS.
Harik noted that while the company has made significant progress in implementing its LTL 2.0 plan, it is still in the early stages of realizing its full potential.
XPO Logistics Gains 10% on Q1 Beat
XPO Logistics (NYSE:XPO) saw a surge of over 10% in its shares intra-day today, driven by a better-than-expected Q1 earnings report. The company reported earnings per share (EPS) of $0.81, outperforming the consensus estimate of $0.67. Revenue reached $2.02 billion, surpassing the estimated $2.01 billion.
The company's adjusted EBITDA margin increased to 20.9%, compared to 16.3% in the same period last year. CEO Mario Harik highlighted that the strong Q1 financial results exceeded expectations, providing a solid foundation for 2024. XPO Logistics achieved year-over-year growth of 6% in revenue, 37% in adjusted EBITDA, and 45% in adjusted diluted EPS.
Harik noted that while the company has made significant progress in implementing its LTL 2.0 plan, it is still in the early stages of realizing its full potential.
XPO Price Target Raised at Wolfe Research
Wolfe Research analysts raised their price target for XPO (NYSE:XPO) from $87 per share to $105 while maintaining an Outperform rating on the stock.
The analysts’ assessment of the transportation sector in the third quarter suggested an improving risk/reward scenario for transport stocks. They pointed out early indications of a potential bottoming in freight demand, citing recent improvements in West Coast import volumes, as well as rail intermodal and carload volumes.
However, they acknowledged that TL (Truckload) spot rates remain close to historical lows, and the firm anticipates ongoing pressure on contractual pricing and overall yield growth. Consequently, Wolfe Research believes there is continued earnings per share (EPS) risk across the industry in the third quarter, with even greater potential risk to the Street's fourth-quarter estimates.
Regarding XPO, the analysts expressed confidence in its "significant turnaround potential" and highlighted the possibility of substantial margin improvement and stock price upside from its current levels.