XPO turns in strong Q4 2022 earnings results

Fourth quarter earnings for Greenwich, Conn.-based less-than-truckload (LTL) services provider XPO Logistics were strong, the company reported this week.

Revenue came in at $1.83 billion, for a 3.3% annual increase, and adjusted earnings per share, at $0.98, topped the $0.64 recorded for the same quarter a year ago. XPO officials cited various growth drivers that factored into its quarterly earnings growth, including growing volumes, pricing, margins, and earnings, in what is called a “challenging macro environment,” and growing its shipment count and tonnage, outperforming negative trends in the industry and typical seasonality.

An XPO official told LM that the positive tonnage seen in the fourth quarter is a byproduct of the company’s LTL 2.0 plan, which focused on investing in capacity ahead of demand and earn profitable market share by providing best-in-class service.

Fourth quarter North American LTL revenue, at $1.09 billion, was up 7.3% annually, with yield, excluding fuel, up 1.4%, which XPO reflected a strategic change in channel mix. And it added that tonnage saw a 0.9% gain, paced by a 1.5% gain in shipment count. Revenue for its European Transportation segment, at $738 million, was off 3.7%, with the decrease due to an unfavorable foreign currency exchange

For calendar year 2022, XPO’s revenue was up 6.5% annually, to $7.7 billion, with adjusted earnings per share, at $3.53, topping 2021’s $1.94. The company also generated more than $1 billion of adjusted EBITDA in its LTL business, topping a target it had going into the year.

“Our growth plan for LTL is to invest in capacity ahead of demand and earn market share by providing best-in-class service,” said Mario Harik, chief executive officer of XPO, in a statement. “In the fourth quarter, we grew tonnage and shipment count year-over-year at a time when the industry saw these metrics decline. Yield came in at the low end of our outlook, reflecting a strategic change in channel mix that we believe will be a tailwind for both volume and yield as freight demand improves. In January, our tonnage was up year-over-year and trended better than typical seasonality. We’re excited by the strong trajectory we’ve created, and the tangible ways we're strengthening our positioning. In LTL, our employee satisfaction was up sharply to the highest rating in more than a decade. In Europe, the business is continuing to perform above expectations. We’re confident that we’ll achieve our long-term LTL outlook and deliver superior shareholder value.”

XPO’s Chief Investor Relations Officer Tavio Headley said in an interview that the that XPO was able to grow its fourth quarter shipping volumes, at a time when customers were generally shipping less overall.

A key reason for that, he explained, was the initiation of its LTL 2.0 plan, which includes key objectives like investing in capacity ahead of demand and, in turn, allow the company to earn profitable market share by being able to provide extremely high levels of service to its customers.

“If you take a look at our service quality in the fourth quarter, that was our best service quality in six years,” he said. “We are having a lot of success as we meet with new customers…and onboarding them into our network. These are customers we are signing up for the first time, and they are telling us the onboarding experience went smoothly and they are rewarding us with additional business in other parts of the country. That is the benefit of us strategically adding this capacity. New and existing customers are telling us that we rank as one of their top LTL carriers, in terms of quality of service. That is really refreshing.”    

As for how XPO has been able to take market share, Headley said providing best-in-class service is a major driver, and it has allowed the company to expand its customer relationships. Another driver, he cited, is expanding its sales organization, with a focus on penetrating target vertical markets and looking at vertical markets where it has a footprint that can be larger.

“A lot of that goes back to customer service levels,” he said. “And the underlying theme is making these investments into capacity so that we can take on more demand. The investments are helping us now but once you start to see the maximum proof, we are going to be extremely well-positioned.”

Another key growth driver, he said, is pricing optimization, which is XPO leaning on its proprietary technology, which has presented very unique opportunities with its blue-chip customers, for XPO to increase its win rates, when having discussions about potential business.

“As a result of that, we are seeing incremental wins, both with new customers and on the renewal side,” he said. And leveraging technology to optimize our operating costs…[presents] significant opportunities across the board to reduce our linehaul costs, making sure we are moving freight as efficiently as possible in between our various service centers. We have an opportunity to reduce costs, in terms of local pickup and delivery, as well as labor on the dock, in terms of our dock operations.

At a time when inflation remains high but is receding and manufacturing is seeing some slowing, Headley said XPO is cautiously optimistic about demand based on the current environment, as well as its January results, and customer feedback.

“That is really going to be critical as we head into the spring and the back half of this year,” he said. “We are very realistic, in that we are watching the macroeconomy closely like everyone else. Our retail customers are starting to work through their inventory levels. We saw that happening as we moved through late 2022. From an industrial standpoint, those customer trends have been mixed. Short-term demand has been softer, and ISM readings are a good proof point of that. But based on conversations with our industrial customers, we do expect to see a rebound in demand, as we move through the year.”  

On a positive note, he observed that the automobile market is seeing improvement, with that strength being driven by improving supply chain dynamics and also pent-up demand and also pent-up demand with machinery OEMs, with demand expected to start flowing through the system as microchips become more available.

“From our standpoint, the way we look at things, regardless of the macro, we are focused on what we can control,” he said. “We are making these investments in capacity and expanding our sales force, and improving our service levels. That has a direct correlation to us growing tonnage in the fourth quarter, and we are seeing that strength carry into 2023.”