XPO Logistics delivers but remains in the red

The quarterly headline numbers reported by XPO Logistics on 3 May were always meant to be eye-catching given its acquisition-led strategy over the past few years.

The US-based 3PL saw gross revenue increase 404.4% year-over-year to $3.5bn, and net revenue increased 510.5% to $1.6bn.

While the integration of Con-way and Norbert Dentressangle seems to be proceeding smoothly, its net loss in the first quarter stood at $23.2m, or $0.21 per diluted share, compared with a net loss of $15.4m, or $0.20 on a fully diluted basis, one year earlier. 

Adjusted net loss, a non-GAAP measure, was much lower at $9.3m (-$9.9m in Q115), but excludes certain one-offs charges related to acquisitions, unrealised foreign exchange costs net of tax and a few other items.

XPO’s core transportation unit turned over $2.3bn, up 308.6% year-on-year, primarily due to acquisitions and organic revenue growth led by the last mile and truck brokerage businesses.

Net revenue margin rose to 28.3% from 21.6% one year earlier, thanks to the purchase of less-than-truckload assets that came principally with Con-way, “and organic margin improvement in truck brokerage and last mile, partially offset by lower intermodal and expedite margins”, XPO said, adding that quarterly adjusted EBITDA surged to $196m from $23.3m a year ago, while operating income came in at $75.4m versus $3.6m a year ago.

The surge in adjusted EBITDA and operating income was primarily due to inorganic growth and improved profitability led by truck brokerage – both metrics in the LTL business were higher than expected due to pricing improvements and cost savings at SG&A level.

Meanwhile, the company’s smaller logistics division generated gross revenue of $1.3bn, up 795.4% from $140.8m year-on-year, with gross margin at $156.7m, up 691.4% from $19.8m a year earlier. Adjusted EBITDA stood at $87.8m, up 336.8% from $20.1m a year ago. The unit recorded an operating income of $31.9m, up 398.4% from $6.4m a year ago.

At group level, rising gross revenues, higher gross margins, increased adjusted EBITDA and operating income came on the back of inorganic growth, which basically means that XPO is now profitable at operating level with EBIT of $62.4m (-$4.8m in Q1 2015).

Year-on-year comparisons are hard to make, given how swiftly XPO’s assets base has changed, but higher volumes from e-commerce and high tech and the strong performance of its European business contributed to the rise in operating income and cash flows.

Chief executive Bradley Jacobs said that 2016 was “off to a stellar start”.

“We generated $249 million of adjusted EBITDA in the quarter, and organic revenue growth of almost 12%, excluding fuel,” he noted, adding that the freight brokerage and last mile businesses continued to lead growth in North America, while in Europe, the “transportation and logistics segments exceeded expectations for both sales and margins.”

Annualized, the quarterly number amounts to almost $1bn a year, which is significantly lower than its full-year target “of at least $1.25 billion of adjusted EBITDA”, but the first quarter is traditionally the slowest in the year and sales will rise as the summer retail season gets underway, followed by Thanksgiving and Christmas. Based on its guidance for EBITDA, its forward net leverage stands at 4x.

XPO Logistics quarterly operating cash flow was down year-one-year, while free cash flow was negative given rising capex requirements. For 2018, it reaffirmed its full year adjusted EBITDA target of approximately $1.7bn.

Source: Transport Intelligence, 18th May 2016

Author: Alessandro Pasetti