XPO Posts Q1 Net Income Rise of 294% Despite Tough Market
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XPO Inc. experienced a 294.1% increase in earnings year-over-year despite a soft freight environment during the first quarter of 2024, the company reported May 3.
The Greenwich, Conn.-based less-than-truckload carrier posted net income from continuing operations of $67 million, or 56 cents per diluted share, for the three months ending March 31. That compared with $17 million, 15 cents, during the same time the previous year. Total revenue increased by 5.8% to $2.02 billion from $1.91 billion.
“Definitely a good quarter for us in what was a soft macro,” XPO Chief Strategy Officer Ali Faghri told Transport Topics. “That’s in a soft freight environment, so as we look forward with a lot of our initiatives still in the early innings, and eventually, it’s a matter of when, not if, you’ll start to see the macro turn as well, we’re really excited about the outlook.”
XPO noted in the earnings report that the year-over-year increase in revenue was primarily due to higher yield and tonnage per day in the North American less-than-truckload segment. This was partially offset by lower fuel surcharge revenue. Earnings before interest, taxes, depreciation and amortization also grew by 37%.
“That total company increase in earnings was driven by our LTL segment, where operating income was up 50% year-over-year and margins improved by almost 400 basis points year-over-year,” Faghri said. “So really, if you look at the consolidated results, they really tie back to that core LTL segment where we’re delivering strong revenue growth, but that’s translating to very strong income growth within that LTL segment. And that’s really what’s driving the results.”
XPO ranks No. 5 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
“But at a more fundamental level, how we’re able to do that is through very strong yield growth,” Faghri said. “You saw that our pricing or our yield, as we measure it in the LTL industry, was up 9.8% on a year-over-year basis. We also saw 2.6% tonnage growth. The combination of that strong yield growth plus that tonnage growth combined with very good cost efficiency is what ultimately translated to that very strong bottom-line performance that we delivered.”
Faghri also noted that the company still has a lot of initiatives that it’s executing, with service improvements, pricing, growing premium services and growing into the local channel. There also are different cost levers the company is pulling, like insourcing third-party linehaul, reducing maintenance costs and driving labor productivity.
“All of those initiatives that we’re executing, I would characterize them as still being at the very early innings,” Faghri said. “We still think we have a lot of wood to chop as we think about our pricing opportunity and our cost-efficiency opportunity as well. So again, here in a soft environment in 1Q, we were able to deliver very strong top- and bottom-line growth. If the macro remains weak for the rest of the year, we expect to continue delivering that very strong growth through the balance of the year.”
Faghri added that the company also is in a great position to capitalize on that recovery when the macro environment does eventually turn around, given its reinvestments into the business over the past few years. That includes adding more than 12,000 trailers and 2,000 tractors since 2021.
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“We also recently acquired 28 service centers from the Yellow bankruptcy,” Faghri said. “All of those investments in capacity really put us in a great place, that whenever the market does recover, we’re going to be in a great position to capitalize on that recovery. But even in the near term, absent the macro recovery, again, we just showed what we can do in a soft freight market.”
North American LTL segment revenue increased 9% to $1.22 billion from $1.12 billion. Shipments per day increased 4.7%, tonnage per day increased 2.6%, and yield increased 9.8%. Operating income increased 60.2% to $165 million from $103 million.
European transportation segment revenue increased 1.3% to $797 million from $787 million. Its operating income came in at a loss of $4 million compared with a loss of $3 million a year earlier.
TD Cowen noted in a report that the adjusted earnings per share of 81 cents beat its forecast of 68 cents as well as the consensus estimates. The report highlighted that LTL segment top-line numbers were slightly below its forecast, but operating ratio came better than expected.
“XPO handily beat 1Q expectations on a tonnage and OR beat,” Cowen analyst Jason Seidl wrote in the report. “April trends are better than seasonality, and pricing renewals remain robust. Strength is expected to continue through ’24 despite tougher comps on local customer growth and premium offerings. Minimal margin dilution from terminal openings is a positive sign, and financial leverage should moderate through ’24.”
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