XPO Logistics back in the black after years of losses

The formidable run of XPO Logistics was there for all to see in 2016, with annual and quarterly results this week showing the US-headquartered freight brokerage and contract logistics firm is back in the black after a few years during which it decided to build its own success on a slew of acquisitions.

Remarkably, its stock more than doubled from its lowest levels last year, and now trades only a few dollars away from this week’s all-time highs, having shot up to $54.70 on the day that followed the trading announcement, settling eventually at $49.02.

Although trading multiples associated with its stock price remain strong, both based on earnings and core cash flows, they have dropped substantially in the past 18 months due to rising profits and higher returns, which could increase further still if management continues to deliver, rendering its stock even cheaper in relative terms.

A strong operating performance came as its annual gross cash pile grew 25% to $373m, while refinancing risk remained under control, confirming a sound capital allocation strategy and impressive execution. Adjusted EBITDA increased to $291.1m in the final quarter of 2016, excluding transaction, integration and rebranding costs, up from $217.6m in 2015. Spurred by inorganic growth, annual adjusted EBITDA climbed to $1.25bn from $493.1m a year earlier.

Crucially, XPO generated $625.4m of annual cash flow from operations in 2016 (2015: $90.8m) and $210.9m of free cash flow, reaffirming “its full year targets for adjusted EBITDA of at least $1.35bn for 2017 and $1.575bn for 2018.” It forecasts annual free cash flow of at least $350m in 2017, and $550m the year after.

The larger Transportation unit recorded revenues of $2.33bn in the final quarter of 2016, up from $2.1bn a year earlier.

“The year-over-year increase in revenue was primarily due to the acquisition of Con-way (…) and to organic growth in both North America and Europe, partially offset by the divestiture of the North American full truckload unit on October 27, 2016” to TransForce for about $560m.

Annual sales for the division were $9.4bn, with net revenues standing at $2.66bn.

Unsurprisingly, given recent trends, it said that Transportation’s organic sales growth was led by the last-mile unit, primarily driven by an increase in e-commerce business. “Revenue growth was partially offset by softness in North American intermodal volumes,” it flagged.

The Logistics division reported revenues of over $1.38bn in the fourth quarter (2015: $1.27bn), thanks to the purchase of Con-way in late 2015 as well as organic growth both in North America and Europe. Annual revenues for Logistics were $5.3bn, with net revenues standing at almost $4.1bn.

XPO noted that in Europe, organic growth from new contracts with e-commerce and cold-chain customers was negated by the adverse impact of foreign exchange rates. In North America, meanwhile, “growth was largely driven by gains in e-commerce, food and beverage, and aerospace business, partially offset by softness in automotive.”

Source: Transport Intelligence

Author: Alessandro Pasetti