XPO Logistics Inc. produced a record first quarter for profits and revenues, boosted by progress in its efforts to make its less-than-truckload network more efficient. The company’s leaders have raised their forecast for 2022 performance and said their work to shed debt is ahead of schedule.
Connecticut-based XPO, which ranks No. 9 on the 2022 FleetOwner 500: For-Hire list, also announced that Drew Wilkerson will be the CEO of its tech-enabled brokered services unit that is being spun out late this year. Wilkerson is today president of North American Transportation for the company, which he joined in 2012 from C.H. Robinson Worldwide.
XPO had net income of $488 million in the first three months of the year, more than quadruple the $115 million from the prior-year period. Operating income, which excludes the $450 million gain XPO booked on the sale of its intermodal business to STG Logistics, rose to $625 million from $139 million in early 2021. Revenues climbed to nearly $3.5 billion from $3.0 billion.
Chairman and CEO Brad Jacobs said work on the efficiency of XPO’s LTL group has improved service levels and improved yields. The division’s adjusted operating ratio, which excludes $17 million in gains from real estate sales in 2021, in Q1 was 85.7%.
“We continue to expect our adjusted operating ratio to inflect to year-over-year improvement later this quarter, with an improvement of more than 100 basis points for the full year,” Jacobs said. “We plan to drive hundreds of additional basis points of improvement in the coming years.”
LTL revenues rose nearly 9% early this year to $898 million, helped by growth in the number of trailers and the net addition of 345 doors since October. But rising fuel and purchased transportation costs ate into operating profits, which fell to $132 million from $145 million in Q1 of 2021. On a conference call with analysts and investors, Chief Strategy Officer Matt Fassler said purchased transportation pricing headwinds “are starting to abate” as the company cycles through big increases from a year ago and adds new line-haul contracts.
Looking to the second quarter, executives said they expect volumes to fall several percentage points but said they still hear their customers being optimistic about the outlook and have recently signed or are closing deals with large clients, including one that would rank among the company’s 10 largest.
Sales at XPO’s brokerage/other segment climbed 17% to $2.4 billion, and operating income climbed to $100 million from $64 million. That business’ adjusted EBITDA margin ticked up to 6.7% from 6.1% in the first quarter of 2021.
Jacobs and his team now expect XPO to produce adjusted EBITDA of $1.35 billion to $1.39 billion and adjusted diluted earnings per share of $5.20 to $5.60. Three months ago, when they still owned their intermodal business, they had guided those numbers to a range of $1.36 billion to $1.40 billion and $5 to $5.45, respectively.
On the balance sheet front, XPO executives last month redeemed $630 million of the company's notes due in 2025. That and the STG deal, they said, have put them ahead of the pace needed to meet their goal to have XPO’s net leverage—net debt divided by the last 12 months of adjusted EBITDA—fall to between 1.0. and 2.0x. As of March 31, it was 2.0x versus 2.7x at the end of last year.
Shares of XPO (Ticker: XPO) rose more than 4% to $52.95 on May 10. Year to date, the XPO shares have lost about 30% of their value, trimming the company’s market capitalization to about $6.1 billion.