Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- XPO Inc (XPO, Financial) reported a 4% year-over-year revenue growth to $2.1 billion, with a significant 20% increase in adjusted EBITDA to $333 million.
- The company achieved a strong margin expansion, improving the LTL adjusted operating ratio by 200 basis points year-over-year.
- XPO Inc (XPO) has made substantial investments in capacity, adding nearly 15,000 trailers and more than 4,000 tractors over the past three years.
- The company reported a damage claims ratio improvement to 0.2%, down from 0.4% last year, and improved on-time performance for the 10th consecutive quarter.
- XPO Inc (XPO) has successfully reduced purchase transportation costs by 40% year-over-year, primarily through its line haul in-sourcing initiative.
Negative Points
- Third quarter shipments per day were down by 3.2%, with an overall tonnage per day decline of 3.9%.
- The freight transportation market in Europe remains soft, with industrial shipments down at twice the rate of retail shipments.
- XPO Inc (XPO) faces challenges from macroeconomic factors, with industrial sectors like construction and agriculture showing bearish demand outlooks.
- The company is experiencing a decline in tonnage per day, with October estimated to be down 8% year-over-year.
- Despite improvements, the company still faces competition and potential pricing pressures in the LTL market.
Q & A Highlights
Q: Can you discuss the pricing gap and margin potential, and how the underlying market is progressing with volumes down 8% in October?
A: Mario Harik, CEO, explained that the pricing gap was initially mid-10s compared to best-in-class, but they have closed a couple of points due to outperforming yield. The company is investing in premium services and local accounts, which are yielding higher margins. Regarding volumes, October's decline is partly due to a cyber-attack impact from last year, and the market is normalizing to seasonal trends.
Q: With tonnage down significantly, is it limiting pricing upside in the near term, and what are your thoughts on LTL margin improvement in 2025?
A: Mario Harik noted a constructive pricing environment, with industry capacity exiting the market supporting strong pricing. The company is outperforming in pricing due to service improvements and premium offerings. CFO Kyle Wismans added that they expect to exceed their OR improvement range for 2024 and anticipate strong performance in 2025, driven by ongoing yield and cost initiatives.
Q: Can you elaborate on the remaining opportunities for service improvements beyond in-sourcing line haul?
A: Mario Harik highlighted significant reductions in damage claims and improvements in on-time performance. The company is focusing on further reducing third-party line haul, which enhances efficiency and service reliability. They aim to reach a damage claims ratio of 0.1% and continue to improve service quality through strategic initiatives.
Q: What are your expectations for 2025, considering the current macro environment and your strategic levers?
A: Mario Harik expressed confidence in a strong 2025, driven by service improvements, premium services, local customer growth, and line haul in-sourcing. The company plans to open additional service centers, enhancing efficiency and profitability. They anticipate continued margin improvement and earnings growth, even in a soft macro environment.
Q: How do you view the potential sale of the European business, and what would be the use of proceeds?
A: CFO Kyle Wismans stated that achieving an investment-grade profile is a priority, and a European transaction could accelerate this. The company is focused on reinvesting in the business and reducing leverage. Mario Harik added that they are patient with the sale to ensure good value, as the European business holds high scarcity value. Meanwhile, they continue to perform well in Europe, with strong revenue growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
