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XPO closes less-than-truckload demand gap, Deutsche Bank says

Geofencing data provides Q3 first look as LTL earnings season begins Tuesday

Trucks tracked at a terminal (Photo: Jim Allen/FreightWaves)

Less-than-truckload (LTL) activity at XPO Logistics (NYSE: XPO) experienced a “notable inflection” during the third quarter, according to geofencing data provided by Deutsche Bank (NYSE: DB).

In a Monday note to clients, the firm’s transportation equity research analyst, Amit Mehrotra, said “based on our geofencing data we believe XPO should be able to show a noticeable snap back in relative volume performance, which should allow shares to move higher.”

The firm’s data shows that activity levels around XPO terminals were 2% higher from mid-July to the end of the third quarter than they were during the first two weeks of the quarter. This was favorable to the rest of the LTL industry, which saw a 1% decline over the same period. Activity at Saia (NASDAQ: SAIA) was also off 1%, with Old Dominion Freight Line’s (NASDAQ: ODFL) traffic declining 4%.

“Said another way, our data set shows that XPO saw a notable positive inflection around mid-July, which was further built upon in September while SAIA and ODFL saw some moderation,” Mehrotra continued.

The data also showed that activity in the last two weeks of the third quarter, compared to the beginning of the quarter to mid-September, was 2% higher at XPO. By comparison, the industry saw a 2.5% decline with activity at SAIA falling 4% and Old Dominion down 9%.

Chart: dbDIG Primary Research

The firm’s data innovation group bases its estimates on a proprietary algorithm, which analyzes mobile phone geolocation data within certain boundaries of 1,300 LTL terminals across the country.

Mehrotra notes that the data “is not perfect” as it can’t account for how much freight is on the trucks moving in and out of the facilities and how changes in pricing can impact activity, but said he believes the data is a “relevant gauge of relative performance” based on past indications.

Even though the data wasn’t as strong at Old Dominion and Saia, Mehrotra still expects those companies to beat current consensus estimates. He believes margins at Old Dominion are better than forecast as weight per shipment increased in the period and that Saia was successful taking “aggressive pricing actions” in the quarter, also beneficial to margins.

Another gauge of LTL demand comes from the Purchasing Managers’ Index (PMI), a reading on domestic manufacturing activity. The index remained above the all-important 50% level again in September at 55.4%. A reading above 50% implies expansion in the U.S. manufacturing sector. The index dipped 60 basis points from the August reading but extended its streak of months in expansion territory to five after an April plunge.

The new-orders component of the index remained in positive territory at 60.2% but 740 basis points lower than the 10-year high achieved in August. Customers’ inventories remained “too low” at 37.9%.

Old Dominion is the first LTL carrier to report third-quarter results. They report Tuesday before the market opens, followed by Saia and Forward Air (NASDAQ: FWRD) on Thursday. XPO and ArcBest (NASDAQ: ARCB) report results next week.

If the Deutsche Bank data on XPO proves true, it would be welcomed by investors, which saw the company’s LTL segment post industry-lagging results last quarter. Tonnage declines of 19% and an adjusted operating ratio of 90% sent shares 13% lower the trading session following the report.

“At a high level, we remain positive on the LTL sector as a whole. Resilient and improving industrial demand, strong pricing discipline, and higher weight per shipment are likely to translate to strong margins across the board among non-unionized LTL companies like ODFL, SAIA and XPO,” Mehrotra concluded.

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.