18 Jul XPO says it’s at an ‘inflection point’ to profitability
XPO Logistics has reached an “inflection point” on its road to profitability, the company said Monday in a document filed with the U.S. Securities and Exchange Commission.
The global logistics and transport company won’t release second-quarter earnings until Aug. 4, but XPO said in its filing it has “a clear line of sight” to its $1.7 billion 2018 EBITDA target.
Currently, XPO forecasts earnings before interest, taxes, depreciation and amortization will reach $1.25 billion in 2016, after reaching $493.1 million in adjusted EBITDA in 2015.
In its filing, XPO said it had identified at least $300 million in run-rate cost savings it expects to gain over the next 36 months, in addition to $170 million to $210 million in less-than-truckload “profit improvement opportunities,” including $90 million in already realized savings.
XPO released its revised investor presentation shortly after a major investor, Canada’s Public Sector Pension Investment Board, sold 4 million shares of XPO stock for $26.20 per share, or about $104.8 million. The amount of shares traded in the sale, reported by The Wall Street Journal , represent about 29 percent of PSP Investments’ total holdings in XPO Logistics.
After six years of rapid, acquisition-fueled growth, XPO is under growing pressure from some investors to show results. The company’s stock increased in value through 2015, climbing above $40 per share, but as XPO made its biggest acquisitions — the $3.5 billion buyout of Norbert Dentressangle and $3 billion Con-way purchase — XPO’s share value declined.
For most of this year, XPO shares have been trading in the upper $20-per-share range, dipping into the low $20s and rising into the $30s on occasion. The stock took a hit after the United Kingdom’s vote to leave the European Union in June, and has recovered in see-saw fashion over the first few weeks of July. The value of the stock rose 6 percent over the course of the day Monday, July 18, climbing to $26.88 by the late afternoon. The investor report seems designed to reassure investors the company’s long-term vision for growth and profit remains in place.
Since Bradley S. Jacobs launched the company in 2011 with a $150 million investment in what was then Express-1 Expedited Solutions, XPO has focused on growth by acquisition, and acquiring the investment needed to sustain that growth, over profit. That rapid growth vaulted XPO onto the Fortune 500 list this year for the first time, at No. 353. After acquiring Con-way and Norbert Dentressangle in 2015, both since rebranded as XPO, the company shifted that focus toward “digesting” those acquisitions and building an interlocking portfolio of services.
To help drive the now $15 billion business toward profitability, XPO in May hired Ramon Genemaras in May as chief transformation officer. Genemaras is tasked with bringing a tighter “P&L focus” to XPO’s global business processes. Prior to XPO, Genemaras served as chief operating officer for a $4.5 billion division of Johnson Controls, vice president-operational excellence for an $8 billion division of Tyco International and senior vice president-global operations and supply chain for CHEP, a logistics company of the Brambles Group.
On a non-GAAP adjusted basis, XPO lost $191.6 million in 2015, including $165.2 million in one-time, after-tax transaction related costs. The company’s EBITDA, however, has been positive since the fourth quarter of 2013 and rose from $29.2 million in the first quarter of 2015 to $249 million in the first quarter this year, as its revenue base expanded significantly.
In its filing, XPO stressed its role in e-commerce fulfillment, especially in last-mile logistics, among the factors pointing toward further strong growth in its business. The company also noted that many of its divisions operate on a long-term contract basis in areas of logistics that depend less on economic cycles. XPO also claimed it is well positioned to manage through “Brexit,” with most of its U.K. EBITDA coming from long-term contract logistics business.
The company’s U.S. LTL division is already on a more profitable footing. In the first quarter, XPO increased the LTL division’s adjusted operating profit by 54 percent year-over-year. “We’re running LTL as a more efficient organization,” Jacobs said. The company hopes investors, as well as shippers, will buy into XPO’s vision for the long-haul.