Fourth quarter wobbles at XPO dent 2019 prospects

XPO Logistics last week reported a mixed trading update for 2018, confirming it is looking at ways to shore up its valuation on the stock market via additional share buybacks.

Now worth just over half the $11bn market cap it boasted just one year ago, encouragingly this US-based overland transport and contract logistics firm is still growing fast, although headwinds are apparent.

Chairman and chief executive Brad Jacobs said in 2018 XPO “delivered 12.3% revenue growth, 9.3% organic growth and $1.56bn of adjusted EBITDA – up 14.3% over 2017”.

However, after a challenging third quarter, Mr Jacobs noted the company missed “fourth quarter forecast for adjusted EBITDA, primarily due to headwinds in France and the UK and a loss of profit in the postal injection business with our largest customer”.

Adjusted 2019 EBITDA growth is now expected to range between 6% and 10% this year, as its largest customer is substantially downsizing its business portfolio “with XPO starting in the first quarter,” while a more cautious view applies to the outlook in Europe.

Group revenues came in at $17.28bn, a 12.3% increase from $15.4bn for 2017, against a 4.7% growth rate from $14.6bn one year earlier, which means 2018 could have been peak growth year.

Core transportation activities turned over $11bn, with growth recorded across most units, while its logistics division had sales of $6bn.

Annual organic revenue growth – which excludes the impacts of fuel and foreign exchange swings – was 9.3%, driving record net income attributable to shareholders of $390m, against $312 million in 2017. Diluted earnings per share stood at $2.88 versus $2.45 in 2017, while adjusted EBITDA rose to $1.56bn (2017: $1.37bn) – all these key metrics were in good order.

[Adjusted EBITDA for 2018 excludes transaction, integration and rebranding costs, litigation costs, benefit related to a gain on the sale of an equity investment and other restructuring costs, primarily severance.]

The company expects higher working capital needs to fund future revenue growth, only partly offset by incremental proceeds of $125m-$150m from trade receivables programs.

With $500m of cash on the balance sheet, but significantly higher operating cash flow in 2018 (over $1bn), XPO recently completed a $1bn share repurchase program that was announced in December – buybacks were carried out at about $56 a share, but the stock is now down to the low-$50s after taking a hammering on the day its results were published last week.

On 13 February it launched a new share repurchase program of up to $1.5bn, which will be funded by available cash from operations and financing sources.

Full-year 2019 targets include revenue growth of 3% to 5% (organic 4%-6%); adjusted EBITDA of between $1.65bn and $1.725bn; free cash flow of up to $625m, versus $650m previously; net capital expenditures of between $400m and $450m; effective tax rate in the range of 26% to 29%; and cash taxes in the range of $165m to $190m.

Source: Transport Intelligence, February 19, 2019

Author: Alessandro Pasetti


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