XPO turns second straight quarterly profit despite ‘mixed’ environment

The Greenwich, Conn.-based third-party logistics provider reported a net income of $13.8 million in the third quarter of 2016 compared with a $93.1 million loss in the same 2015 period, according to the company’s most recent financial statements.    XPO Logistics, Inc. turned its second straight quarterly profit in third quarter 2016, according to the company’s most recent financial statements.
  The Greenwich, Conn.-based third-party logistics provider reported a net income of $13.8 million in the third quarter of 2016 compared with a $93.1 million loss in the same 2015 period, following a $42.6 million profit in the second quarter.
   Diluted earnings per share (EPS) stood at $0.11 for the quarter compared with a loss of $0.94 per share the previous year. The company increased third quarter revenues 57.2 percent year-over-year to $3.7 billion.
   XPO noted adjusted net income attributable to common shareholders, a non-GAAP financial measure, stood at $49.8 million compared with a net loss of $15.2 million in third quarter 2015. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), also a non-GAAP measure, skyrocketed 112.3 percent year-over-year to $352.7 million in third quarter 2016.
   Typically on the other side of the table when it comes to acquisitions, XPO late last month sold its U.S. full truckload (TL) division to Canadian motor carrier TransForce Inc. for $558 million in cash. The company acquired the TL network assets, which include 3,000 tractors, 7,500 trailers and 29 stations, as part of its $3 billion purchase of Con-way Inc. in October 2015.
   XPO CEO Brad Jacobs said in a recent interview with American Shipper the company would continue to offer full TL services through its extensive brokerage network, but the Con-way assets never really fit with its overall vision for the future of the company.
   After fielding bids from several different trucking companies, Jacobs decided to keep the TL division, headquartered in Joplin, Mo., in tact.
   “We did receive some offers [before], but the prices were not acceptable. We would have been happy to keep growing Truckload and we were not looking for buyers,” he said. Instead, TransForce approached XPO a few months ago and made a compelling offer.
   XPO said in a statement it plans to use the proceeds from the sale to pay down debt.
   “The divestment furthered the company’s strategy of focusing on the supply chain services where it holds leadership positions: contract logistics, truck brokerage, less-than-truckload, last mile, intermodal, drayage, expedite and managed transportation,” the 3PL added in its third quarter earnings report. “Additionally, the transaction is expected to improve the company’s return on capital, enhance its long-term growth rate, reduce its capex requirement, and lessen the cyclicality of the business.”
   XPO’s two reporting segments – transportation and logistics – both reported strong increases in operating income and gross revenues compared to the third quarter of 2015.
   The transportation segment in the third quarter more than tripled its operating income to $125.4 million as revenues rose 72.5 percent to $2.4 billion compared with the previous year. XPO attributed the revenue growth primarily to the acquisition of Con-way and organic growth led by increases in e-commerce business in its last mile segment, which were partially offset by lower fuel-related revenue.
   The company’s logistics segment posted an operating income of $75.3 million on $1.3 billion in revenues, year-over-year increases of 109.2 percent and 35.6 percent, respectively, also thanks primarily to the Con-way acquisition.
   “In Europe, sales growth was largely driven by new contract starts with e-commerce and cold-chain customers, but was more than offset by the adverse impact of unfavorable foreign exchange rates,” XPO said. “In North America, growth was largely driven by e-commerce and technology contracts, while traditional retail was weaker.”
   Speaking about the results, Jacobs said the company performed strongly despited a “mixed operating environment.”
   “Importantly, we generated free cash flow of $65 million in the quarter, and raised our 2016 target for free cash flow to at least $175 million,” he said. “In North America, vigorous demand from e-commerce drove growth in our contract logistics and last mile operations, while brokerage and intermodal were generally soft.
   “Our less-than-truckload business in North America had another outstanding quarter, with higher yield and lower SG&A. This propelled a 40 percent increase in LTL operating income versus a year ago, pre-acquisition. In Europe, where XPO is the market leader in e-fulfillment, we continued to win new business from major retailers based on our e-commerce expertise.”
   Jacobs said the diversity of XPO’s business model affords the company “substantial autonomy from macro cycles.”
   “We have a well-defined bridge from where we stand today to our target of $1.575 billion of EBITDA in 2018,” he said. “Every component of that bridge is underway – including the optimization of over $13 billion of spend, a dual focus on cross-selling and market penetration, and the adoption of global best practices that benefit our employees as well as our customers.”