LTL carrier XPO had its debt rating affirmed Thursday by Moody’s, but with one significant change: its outlook was adjusted upward to positive from stable.
A positive outlook is often a precursor to a rating increase (as a negative outlook can be a precursor to a rating downgrade.) But a positive outlook does not guarantee an upgrade.
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As Moody’s defines a positive or negative outlook in its methodology statement, the two outlooks on either side of stable suggest a “higher likelihood that the credit rating may change in the medium term. In most cases, Moody’s Ratings follows up on an outlook change in about 12-18 months.”
XPO’s ratings were affirmed by Moody’s at Ba2 for the Corporate Family Rating (CFR) and Ba2-PD for its Probability of Default rating.
S&P and Moody’s at same level
Although Moody’s didn’t change the company’s rating, the move to a positive outlook comes less than three months after S&P Global Ratings downgraded XPO’s debt to BB from BB+. When S&P made that move, it put the two agencies’ rating of XPO (NYSE: XPO) at levels considered equivalent.
However, the S&P Global (NYSE: SPGI) outlook on XPO is stable, in contrast to the new positive outlook at Moody’s (NYSE: MCO) just bestowed this week.
The change to a positive outlook and the reasons Moody’s cited for the move stand in stark contrast to what S&P Global said in July in conjunction with its downgrade of XPO that came down at the start of July, even though both companies are effectively at the same place.
While S&P Global made its call largely on the basis of its expectation of the freight recession dragging on, Moody’s more optimistic outlook is tied to a “slow recovery” in freight markets as well as various operating changes XPO has implemented.
“The positive outlook reflects expectations that XPO will improve profitability and maintain credit metrics despite current industry challenges,” Moody’s said.
Moody’s added it expects improvement in XPO’s operating performance going into 2026, “driven by cost reduction initiatives and profitable growth from its network expansion following the acquisition of certain terminals previously owned by Yellow Corporation.” XPO acquired the terminals from Yellow in late 2023 and began opening them within the XPO network last year.
We’ve heard this statement previously
And in a sentence that could have been written anytime in the last two to three years, Moody’s said: “In addition, we expect a slow recovery in key transport areas such as freight volumes and spot pricing over the next year.”
The ratings agency also was upbeat about the outlook for XPO’s finances. “We anticipate that XPO will maintain a prudent approach to capital allocation while achieving profitable growth and stronger credit metrics, even in the face of end-market headwinds,” the ratings agency said. “We project that XPO will sustain solid profit margins and strong interest coverage, with debt-to-EBITDA stabilizing under 3.0x in 2026.”
XPO in the second quarter recorded revenue of $2.08 billion, almost identical to a year earlier. Its net income of $106 million was down from $150 million a year earlier.
Moving from a positive outlook to an actual upgrade, Moody’s said, would need “an improvement in margins, a sustained debt-to-EBITDA ratio approaching 3.0x and EBITDA-to-interest coverage of approximately 5 times.”
Reasons for a possible downgrade would include debt-to-EBITDA rising to 4X, or “if the company fails to improve EBIT margin from the current level of 8.5%,” Moody’s said.
An XPO spokesman declined comment on the Moody’s report.
XPO’s stock is up about 13.7% in the last year and 8.7% in the last three months.
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