Some highlights from a blowout quarter by XPO Logistics:
- Several other logistics and 3PL companies have reported their earnings were hit in the quarter by the cost of purchased transportation, where high spot market prices were paid to cover contractual requirements, at a price greater than the contracted level. Not XPO. CEO Brad Jacobs said the company actually managed to cut its purchased transportation costs by 8.5% by “increased utilization and moving more freight to our own fleet.”
- XPO’s last mile business grew 15% in the first quarter. Jacobs conceded it is an extremely competitive market. Customers “demand an extremely high level of service,” but for a company to succeed it needs “lots of ingredients, scale, density and a national network of last mile hubs.” During the quarter, the last mile business opened up 20 new sites, averaging two facilities per week.
- Numerous company records were set. The earnings showed record first quarter revenue, net income, earnings per share and adjusted EBITDA. The transportation segment saw its revenue grow 16%, to $2.77 billion. Operating income was up to $139 million for the quarter, up from $105.3 million. The operating ratio for the North American LTL segment was 87.8%, which was a 120 basis point improvement. Brokerage revenues were up 30% year-on-year. New business signed up totaled $972 million, an increase of 36% year-on-year and a new quarterly record for the company. The pipeline for new business was a record, standing at $3.66 billion, up 23% from a a year earlier. In short, there was almost no number in the report that showed a decline or even weakness.
- XPO has made numerous acquisitions in the last mile business in recent years and it pushing to grow that business in Europe. “Once we got scale (in North America), we were able to get density, we were able to crack the nut of last mile,” Jacobs said. “In Europe, that is our main dilemma. How do you get up to the scale you need to get the cost structure that allows us to give an extremely high level of customers satisfaction and make a decent profit on it as well?”
- Acquisitions are one way to get there in Europe, but any acquisition would need to be “immediately accretive,” Jacobs said. “Otherwise, it’s a bad use of capital and resources.” The pickings for potential acquisitions are slim, he said, and not just in Europe; “there’s isn’t a whole lot to go buy in North America either.” Jacobs said earlier acquisitions in the last mile space by XPO have been fully integrated into the company’s platform. Still, the ambitious XPO acquisition targets remain on track, Jacobs said. “The base case scenario is, we would have a big acquisition or two medium sized acquisitions announced by the end of this year, and we're very much on track for that,” he said.
- XPO has been talked about as a potential acquisition candidate for anybody ranging from Amazon to UPS, in part for its growing last-mile capabilities. An analyst asked whether it would make sense for XPO to “partner” with a company like UPS “who could funnel a large amount of heavy goods freight into your network?” Jacobs said it would make “absolute sense to cooperate with other logistics providers who don’t want to actually do the last mile.”
- There have been questions on numerous conference calls this quarter whether truck traffic is spilling over to the rails because of the tight trucking market. CFO John Hardig said it was: “In intermodal, we grew domestic volumes 7%, and we're seeing an increasing trend of shippers converting from truck to rail,” he said. Contract renewals averaged a pricing increase of 5.9%, up from 5.3% in the fourth quarter.
- Capacity in Europe is tighter than in the U.S. Even in the quarter leading up the introduction of the ELD mandate, Jacobs said North American capacity is “a little less tight than it was at the beginning of the year.” Not so in Europe, where capacity tightened sequentially in March, April “and we’re starting May with even tighter levels.”
- In his early morning note, Deutche Bank analyst Amit Mehrotra’s team said the earnings—which were released late Wednesday—were “largely uneventful.” But investors didn’t think so, pushing the stock up 6.77%, up $6.34 to $99.93.