XPO executives see the future — and it’s bullish

For example, the backlog of contract logistics remains “very strong,” said Matt Fassler, XPO’s chief strategy officer. XPO’s truckload brokerage business, which cranked on all cylinders last quarter, will be “spectacular” again during the first quarter, though not as off the charts as in the fourth quarter, said Fassler. With the right mix of headcount and technology now in place, the company expects a “sustained period of success” in this area, Fassler said.

XPO’s less-than-truckload operating ratio, a measure of revenues to expenses, is expected to drop by 200 basis points for 2021 after hitting a fourth-quarter record of 84.5%, Fassler said. The infusion of information technology applications is driving up efficiencies, and XPO is in the “early innings” of optimizing its pricing matrices on LTL traffic, Fassler said. The long-dormant U.S. industrial economy, which is the LTL unit’s bread and butter, is showing signs of stirring, Fassler said; tonnage per day in January was stronger than the average daily tonnage during the fourth quarter, he said.

Malcolm Wilson, the head of XPO’s European operation, said he sees solid growth for years to come as global businesses migrate to the company’s broad-based logistics portfolio to capitalize on improving global economic activity once the pandemic runs its course.

What was also interesting about the hourlong conversation was that Brad Jacobs, XPO’s founder, chairman and CEO, barely said a word. Jacobs, who in prior years would dominate the calls, made brief introductory remarks but didn’t answer any analysts’ questions, turning the call mostly over to Fassler and, to a lesser extent, Wilson.

Changes in a company’s analyst call hierarchy always have significance, and in this most pivotal year for XPO, perhaps Jacobs wanted to give others a chance at the microphone, Certainly, it was an opportunity to introduce Wilson, who will head up a new logistics company that will be spun off to shareholders in the second half of the year. Jacobs will serve as chairman and CEO of a separate transportation concern that includes less-than-truckload, brokerage, last mile, intermodal and expedited transport. 

The spin-off remains on track, Jacobs said. XPO is expected next quarter to file documents with the Securities and Exchange Commission that will shed more light on the transaction.

For now, XPO executives can bask in the glow of a strong fourth quarter, apparent solid momentum into 2021 and favorable analyst commentary. The company “offers compelling cyclical value” in its current pre-spin-off structure, said Bascome Majors, an analyst at Susquehanna Investment Group, in a Thursday note. Majors said that given the current climate and XPO’s positioning, the company’s 2021 EBITDA projections are “reasonable.”

Jason Seidl of Cowen & Co. said XPO “remains well positioned” due to growth in e-commerce where the company is the leader in last-mile delivery of heavy goods, strong customer reception to its technology initiatives and the planned spin-off. XPO continues to be Cowen’s top pick, and the firm’s $148-a-share 12-month price target is “under review,” Seidl said.

Todd Fowler of Key Banc Capital Markets said in an note that favorable fourth-quarter trends are likely sustainable and that the company’s guidance suggests positive performance across the enterprise and strong free cash flow expectations.

Thursday’s trading session, however, didn’t quite reflect analyst optimism. XPO shares fell 4% to $117.60 a share after being higher from shortly after Wednesday’s market close to Thursday’s opening bell.