XPO Logistics reports strong Q4 and full-year 2018 earnings results

XPO Logistics, a Greenwich, Conn.-based provider of global freight transportation and logistics services, reported strong fourth quarter and full-year 2018 earnings earlier today.

Fourth quarter revenue, at $4.39 billion, was up 4.6% annually, and net income attributable to common shareholders came in at $84 million compared to $189 for the same period a year ago, including a $173 million net benefit related to U.S. tax reform. Adjusted EBITDA for the quarter rose 11.4% to $380 million (short of Wall Street's expectations of $401 million), and XPO generated cash flow from operations of $566 million and $479 million in free cash flow. Earnings per share, at $0.72, topped $0.45 a year ago but was short of Wall Street's expectation of $0.84.

Full-year 2018 revenue was up 12.3% to $15.38 billion, and organic revenue growth saw a 9.3% annual gain.

“The year overall was good, said XPO Chairman and CEO Brad Jacobs in an interview. “We also grew EBITDA faster than revenue, at 14.3% [to $1.56 billion].”

Quarterly performance by segment:

• Total transportation revenue, at $2.83 billion, was up 1.8%, with revenue growth paced by North American and European less-than-truckload (LTL) and European truckload and freight brokerage. North American LTL had an operating ratio of 89.2, with the adjusted operating ratio, at 87.3, setting a new fourth quarter record and a gain of 260 basis points. Operating income fell to $106 million from $131 million last year; and
• Logistics revenue was up 10% to $1.59 billion, with organic growth (excluding fuel and foreign exchange impacts) up 12.4%. XPO pointed to rising global demand for e-commerce logistics and the consumer packaged goods and food and beverage sectors in North America and the European fashion sector

“It would not have been possible to implement 100 logistics start-ups in one year, but in 2018 we completed a record 188 start-ups, up from 91 in 2017,” he said. “In December, we ramped up the XPO Direct national network to more than 90 facilities, and we have a backlog of a bunch of customers hungry to get access to our variable cost solutions.”

Addressing XPO’s North American LTL business, Jacobs said that the fourth quarter was the single best fourth quarter operating ratio for XPO in more than 30 years. And on the LTL innovation front, he said XPO is set to deliver the first phase of its control tower services for pickup and delivery, dock, and linehaul, as well as a new year management system, all of which will further improve the efficiency of its network.

XPO’s brokerage businesses are also very active on the technology front, too, he added, with the company’s digital freight marketplace, XPO Connect, now having more than 14,000 carriers registered, while also more than quadrupling the number of transactions initiated compared to the third quarter and have increased the conversion of digital bids by a factor of three.

Looking at XPOs core last mile business for heavy haul goods, Jacobs said it is now supported by 85 hubs across North America, adding that XPO is the undisputed leader in this sector.

“This part of last mile is performing very well, with dedicated services supported by our national network,” he said. “More than 20% of eligible orders are now tracked online and the more automated the process becomes, the more we can reap the efficiencies.”

For 2019, XPO expects revenue growth in the 3%-to-5% range, with organic revenue growth in the 4%-6% range, with adjusted EBITDA between $1.650 billion-to-$1.725 billion for an increase of 6%-to-10% annually, which is down from its initial target of 12%-to-15% annual growth.

This was lowered, according to Jacobs, because XPO’s largest customer is curtailing about two-thirds of its business with the company.

“We had substantial capacity dedicated to this customer, and will redeploy that capacity within a couple quarters in our network and resources,” he said. “But it will take some time, as it is a few hundred million dollars of lost business.”

On a brighter note, XPO said in its earnings release that it has completed the $1 billion stock buyback it announced in December 2018, with its board of directors authorizing an additional buyback of up to another $1.5 billion.

Jacobs said this would impact the company’s M&A objectives in some ways.

“While we love M&A and it is in our DNA, the acquisition that will create the most shareholder value is in acquiring our stock,” he explained. “In summary, 2018 was a strong year of growth and profitability. It ended up on a bit of a down note in the second half of 2018, but a lot of great things are happening and we will have plenty of opportunities in the market. I am optimistic about the future.”