XPO Inc.
Xpo Truck 3 jpg

XPO shipments pop on Yellow fallout

Aug. 4, 2023
CEO Mario Harik says that, ‘given market dynamics,’ XPO will likely ramp up capital spending in the short term to add capacity in the wake of the shutdown this week of Yellow Corp., the No. 6 for-hire FleetOwner 500 carrier that is headed to bankruptcy.

The exit of Yellow Corp. from the less-than-truckload market provided XPO Inc. a big lift in July, one that XPO CEO Mario Harik said Aug. 4 could help his team reach its long-term profitability targets more quickly.

Connecticut-based XPO handled 3.2% more LTL shipments in July compared to June, a sharp reversal from the typical seasonal drop of nearly 3%, Harik told analysts on a conference call.

Similarly, tonnage handled last month rose 2.6% from June—when it is typically down 2.6%—as Yellow customers scrambled to find new avenues for their goods with Yellow embroiled in a bitter battle with the International Brotherhood of Teamsters that ended in the company’s shutdown a few days ago and the union's statement that Yellow intends to declare bankruptcy. XPO is No. 12 on the 2023 for-hire FleetOwner 500; Yellow was No. 6.

See also: Investor bumps stake in shuttered Yellow past 40%

On a year-over-year basis, XPO’s July tonnage was up 4.2% and shipments popped 8.8%. Chief Strategy Officer Ali Faghri told analysts it’s fair for them to assume that those numbers have climbed even higher in recent weeks as more Yellow customers migrated their business late in July.

Faghri also said the new business coming in from Yellow is helping lift XPO's margins. The pricing on contract renewals, which had already been up 5% during the second quarter, improved further in July.

“We’re excited about the trends we see in yield and our outlook for the third quarter as well as the long term,” Faghri said.

The XPO team has been investing heavily in adding capacity and rejuvenating the company’s fleet of tractors and trailers. Capital spending of $424 million in 2022 was more than double the company’s 2021 level and the 2023 forecast calls for that figure to climb to up to $600 million. The mid-term target range calls for XPO to invest between 8% and 12% of revenue annually, but Harik said his team is likely to exceed the top end of that range “given market dynamics.”

XPO might grab former Yellow terminals

Yellow service centers could be a destination for some of that capital, Harik said. XPO has so far this year added capacity at its operations in Norcross, Georgia, and Salt Lake City as it looks to add 900 doors to its network by early next year and Harik said up to a dozen other such projects are in the works. If Yellow facilities come to market, he added, his team will consider them as an avenue to speed up XPO’s growth. Yellow has more than 300 terminals and over 14,000 tractors and more than 43,000 trailers that might come to the trucking real estate and equipment markets.

XPO produced a second-quarter net profit of $33 million on revenues of $1.9 billion. Those numbers were down from $141 million and a little more than $2.0 billion, respectively, in the same period of 2022. The company’s North American LTL operations posted an operating profit of $129 million during the quarter, down 35% from the year before, as tonnage slipped 2.8% even though shipments per day climbed 1.9%. Excluding fuel surcharges, gross revenue per hundredweight ticked up 1.4% to $21.63.

See also: Service gains lift XPO's Q1 numbers, execs see bright spots in April demand

XPO executives are targeting an LTL operating ratio in the low 80s by the end of 2027. (The company’s adjusted OR was 87.6% in the second quarter, a two-point improvement from Q1 2023.) Harik said it’s still too early to definitively say how Yellow’s exit from the market will play out longer-term but did say it’s likely that the recent inflow of profitable business will accelerate XPO’s journey to its target.

XPO’s perspective on shipping activity in the wake of Yellow’s closure amplify comments made late last month by executives of Old Dominion Freight Line Inc., who reported their Q2 2023 results as Yellow’s prospects were souring by the day. President and CEO Marty Freeman and CFO Adam Satterfield told analysts July 26 that their team had seen a recent uptick in daily shipments to about 50,000 from 47,000 and acknowledged that, without explicitly naming Yellow, some of that was due to upheaval at nearly 100-year-old Yellow.

But Satterfield also said the increase reflected a mild strengthening in the freight market as well as Old Dominion picking up market share.

“There’s been a change that's been developing,” Satterfield said. “You can’t point to one specific player and say, ‘This is the reason why.’ It's been a developing trend and it’s the way history has played out for us. When we get to the end of the cycle, we start winning business from different carriers.”

Shares of XPO (Ticker: XPO) climbed more than 5% to about $72 in early trading on the back of the earnings report. Year to date, they have more than doubled, pushing the company’s market capitalization to more than $8 billion.

About the Author

Geert De Lombaerde | Senior Editor

A native of Belgium, Geert De Lombaerde has more than two decades of business journalism experience and writes about markets and economic trends for Endeavor Business Media publications FleetOwner, Healthcare InnovationIndustryWeek, Oil & Gas Journal and T&D World. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati and later was managing editor and editor of the Nashville Business Journal. Most recently, he oversaw the online and print products of the Nashville Post and reported primarily on Middle Tennessee’s finance sector as well as many of its publicly traded companies.

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