XPO Posts Wider 4Q Loss, Sees Progress on Con-way Integration
This story appears in the Feb. 29 print edition of Transport Topics.
XPO Logistics’ fourth-quarter earnings report last week provided the first real glimpse into its long-term financial performance after the 2015 acquisition spree that quadrupled revenue and saw it scoop up Con-way Inc., its largest asset and a major potential profit center.
XPO’s report showed that quarterly losses widened to $62.8 million, or 58 cents per share, tied to acquisition and interest costs. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $218 million, slightly below the average estimate published by Bloomberg News.
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Quarterly revenue rose to $3.34 billion from $830.7 million, year-over-year, when XPO lost $51.5 million, or 77 cents.
November and December revenue from the former Con-way less-than-truckload unit were included in the fourth-quarter XPO earnings report. Less-than-truckload operating ratio improved to 95 from 95.9 for that period, CEO Bradley Jacobs told Transport Topics, in spite of lower tonnage and shipments.
XPO is targeting $170 million to $210 million LTL profit improvement after Con-way’s earnings growth in recent years trailed rivals such as FedEx Freight.
“We are an organization that thinks big,” Jacobs said, reeling off statistics such as 10,500 LTL tractors and 30,000 trailers that will be rebranded, and 18,000 new sets of employee uniforms this year.
“We are likely still a year or two away from the company settling into a more mature and developed state,” said John Larkin, a Stifel, Nicolaus & Co. analyst.
The company’s main task now is integrating the businesses it has acquired. Con-way and the May 2015 purchase of French freight forwarder and logistics operator Norbert Dentressangle added more than $11 billion in annual revenue. XPO has made 15 acquisitions since Jacobs plunged into the freight business in 2011.
Con-way and XPO rank Nos. 4 and 14, respectively, on the 2015 Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers. Norbert Dentressangle ranks No. 25 on the TT Logistics 50, based on results in North America.
“We are certainly not going to stop at a 95 OR,” Jacobs said of the operating ratio, signaling an impatience for improvement during an analyst conference call. “Give us time. It is a totally different company than it was four months ago.”
The Greenwich, Connecticut-based firm said it already has cut LTL costs by $50 million annually.
“They have a lot on their plate,” Mike Regan, chief relationship officer at consultant TranzAct Technologies, told TT, adding that his company has had three new XPO sales representatives in four months.
“They face the challenges associated with integrating different pieces in a supply chain puzzle,” Regan said, as well as a softening freight market. “They are allowing their talent base to be raided.”
XPO has sued R+L Carriers and YRC Freight, charging those carriers poached workers.
Chief Financial Officer John Hardig said XPO expects to post positive net income, excluding one-time integration costs, sometime this year. XPO remains on course to meet its target of $1.25 billion in EBITDA, or debt-free cash flow, this year.
Larkin’s investor note Feb. 23 cited factors such as revenue growth, margin expansion, debt balances and associated acquisition and debt costs that have changed as fast as XPO’s strategy of rolling up logistics, brokerage, last-mile delivery, intermodal, LTL and truckload companies.
While XPO’s investor materials highlight its significant positions in logistics, warehousing, brokerage and other services, Jacobs elaborated on the former Con-way Truckload unit.
“We don’t like being the 18th-largest truckload company,” he said. Earlier this month, XPO decided not to sell the truckload business because potential buyers’ offers were too low.
Jacobs told analysts that keeping shippers happy is a critical part of his strategy.
“If you want to work here, you better be extraordinarily passionate about pleasing customers,” he said. “It has to be something that’s not just a phrase or a part of the values up on the wall. If that doesn’t mesh with someone’s personality, they don’t last.”
Other LTL statistics included $559 million in revenue over two months. No LTL profit statistics were disclosed for the full quarter. In the comparable prior-year period, LTL generated $36.8 million of operating profit, about 90% of the company’s profit on that business and $897.2 million in LTL revenue. On a quarterly basis, tons per day slipped 3.6%, shipments per day fell 4% and rates per 100 pounds of freight were down 2.4% including fuel surcharge, and 3% higher excluding the fees.
For the year, XPO lost $245.9 million, or $2.65 a share, on revenue of $7.62 billion. In 2014, the company lost $107.4 million, or $2, on revenue of $2.36 billion. Annual interest expense soared to $216.7 million from $48 million in 2014.
