Greenwich, Conn.-based XPO Logistics, a provider of global freight transportation and logistics services, reported very strong second quarter earnings yesterday.
Second quarter revenue was up 16% annually to $4.36 billion, and quarterly net income attributable to common shareholders coming in at $137.5 million, which topped $47.6 million for the same period a year ago. And earnings per share, at $1.03, outpaced $0.38 a year ago and beat Wall Street expectations of $0.98 per share. Quarterly adjusted EBITDA increased to $436.7 million, excluding $7.8 million in integration and branding expenses, which was ahead of $370.8 million a year ago.
Quarterly performance by segment:
- Transportation total revenue was up 14.5% annually at $2.89 billion, with XPO noting growth was paced by increases in North American Freight Brokerage and last mile, along with dedicated truckload transportation in Europe, specifically the United Kingdom and France and favorable foreign exchange rates, which resulted in 2.2% in revenue. Quarterly operating income, at $205.4 million was up 19.7% annually. North American less-than-truckload (LTL) net revenue was up 4% at $988.5 million, with the adjusted operating ratio for the segment at 84.3%, for an improvement of 30 basis points; and
- Logistics revenue increased 19.1% to $1.51 billion, with growth being paced by growing demand for e-commerce logistics on a global basis, as well as the North American-based consumer packaged goods and technology sectors, and the European fashion sector. Operating income was up 26.6% at $67.3 million, and adjusted EBITDA rose 20.6% to $134 million. XPO said that the gains in operating income and revenue growth were mainly due to revenue growth and site productivity improvements that were partially offset by higher direct operating costs related to a record number of quarterly contract startups, with 19 in North America and 18 in Europe
“We had a tremendous quarter, there is no other way to say it,” said Brad Jacobs, XPO chairman and CEO, in an interview. “We delivered second quarter records for revenue, net income, EBITDA, and free cash flow. By every metric, we knocked the quarter out of the park. And we had broad-based growth in our operations across the globe, and we won $1.1 billion in new business in the quarter. This is the very first quarter in our history that we closed more than a $1 billion in business. Our sales pipeline currently stands at a robust $3.4 billion.”
On the contract logistics side, Jacobs said XPO on-boarded a record 37 new sites in the quarter, an average of three per week, which was ahead of its previous average of two per week. It also added 21 million square-feet of warehouse space, which represents a 13% increase, and added more than 4,000 new jobs for its contract logistics business.
What’s more, Jacobs pointed out that XPO has a $1.8 billion logistics sales pipeline, which 48% higher than a year ago, when it was at $1.2 billion.
XPO’s Last Mile division had revenue growth of 17%, with e-commerce again serving as a big driver for the gains. In the second quarter, XPO opened an additional 16 last mile hubs, bringing the total amount in the network to 71. XPO remains on track to hit its goal of 85 hubs ahead of the holiday season.
“This will position us within a 125 miles of 90% of U.S. consumers,” said Jacobs. “Our last mile customers are fired up about this capability.”
XPO’s freight brokerage business saw net revenue climb 46% to $122.2 million. Jacobs said the brokerage market environment is very strong, with XPO clearly outperforming, even in July, which traditionally is a slow seasonal month and has turned out to be its best brokerage month so far in 2018.
“In brokerage, we have tremendous momentum with XPO Connect, which is a cloud-based digital freight marketplace we rolled out in April,” he said. “We had zero carriers in April, when we started the platform, and three months later we have 6,000 carriers on XPO Connect. It clearly has great momentum in the carrier community and is going to keep our brokerage business growing.”
XPO Freight, the company’s less-than-truckload (LTL) group achieved its best operating ratio in 30 years at 84.3. Jacobs noted the group’s contract renewal pricing was up 6.4%, which is a new company record, adding that XPO expects more than 200 basis points of year-over-year operating margin improvement in each of the next two quarters.
“Our medium-term goal in LTL is to be in the low 80s OR,” he said.
Jacobs also highlighted the gains XPO Freight is making in addressing the driver shortage, noting that the company’s LTL driver attrition rate in the first half of 2018 was very low at 8%, and its driver job applications in the first half of 2018 were up 51%. XPO’s driver training school graduated 254 drivers in all of 2017 and has already graduated 282 so far this year.
Looking at XPO as a whole, Jacobs said XPO is benefitting from the current macroeconomic conditions and is also generating its own momentum by investing in sales, technology, and training.