Less-than-truckload carrier XPO’s May update appears to put the company on course to outperform its prior tonnage outlook.
XPO’s (NYSE: XPO) tonnage per day was 0.5% higher year over year in May, as a 3.3% increase in daily shipments was partially offset by a 2.7% decline in weight per shipment. The company has been actively pursuing local shippers (SMBs), which tend to have lower shipment weights but better margins. Final results for April showed tonnage was down 1.5% y/y.
The Wednesday update showed the carrier is outperforming typical seasonal demand trends and appears in good position to beat its tonnage guidance for the second quarter, which calls for no y/y change. June is up against an easier prior-year comp (-8.9%) than what the carrier faced in both April (-5.5%) and May (-5.7%).
The tonnage declines also continue to improve on a two-year-stacked comparison. May tonnage was down 5.2% following a 7% decline in April.
XPO doesn’t provide revenue-based metrics or market commentary in its midquarter updates. However, it noted on its first-quarter call at the end of April that it was winning share at “above-market” rates. In addition to greater penetration among SMBs, it is seeing more shippers use its premium services, which typically incur accessorial charges.
Industrial activity improved for a fifth consecutive month in May, according to manufacturing data published on Monday.
The Institute for Supply Management’s Manufacturing PMI registered a 54 reading for the month, which was 130 basis points higher than April, and the highest reading in four years. (A reading above 50 signals expansion, while one below 50 indicates contraction.) The subindex for new orders—an indicator of future activity—registered a 56.8 reading, which was 270 bps better sequentially.
Inflections in ISM data usually lead LTL volumes by a few months.
On the pricing side, management previously said that contractual rate renewals were up by a mid- to high-single-digit percentage during the first quarter. It also forecast second-quarter yield to come in “comfortably ahead” of the mid-single-digit y/y yield increase captured in the first quarter.
XPO normally records 250 to 300 bps of sequential margin improvement in the second quarter; however, management expects to exceed the high end of that range (an 80.9% adjusted operating ratio). The guide implies at least 200 bps of y/y margin improvement.
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