Following discouraging earnings reports from less-than-truckload peers, prompting a broad sell-off within the stocks, XPO solidly beat first-quarter expectations Friday and provided a positive outlook moving forward.
First-quarter adjusted earnings per share of 81 cents got here in 14 cents ahead of the consensus estimate and 25 cents higher yr over yr (y/y). The adjusted result excluded 25 cents per share of transaction and restructuring costs.
Revenue in XPO’s (NYSE: XPO) LTL segment increased 9% y/y to $1.22 billion as tonnage per day increased 3% and revenue per hundredweight, or yield, was up 7% (up 10% excluding fuel surcharges). A 5% increase in each day shipments partially offset by a 2% decline in weight per shipment produced the tonnage increase.
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On a y/y comparison, tonnage fell 1.1% in January, but increased 3.5% in February and 5.9% in March. Tonnage was 3.1% higher in April as shipment growth of 4.8% was partially offset by a modest decline in weight per shipment. Tonnage improved barely from March to April on a two-year stacked comparison after declining sequentially in February and March.
On a Friday call with analysts, management said the y/y tonnage and yield growth rates in the primary quarter will likely be repeated within the second quarter.
Pricing increased a mean of 8% y/y on contract renewals within the quarter, following increases of 9% in each the third and fourth quarters. The yield increases are tied to service improvements, a rise in premium business triggering accessorial charges, and shipment growth amongst its local accounts, which are likely to have a greater margin profile.
On its fourth-quarter call in February, XPO quantified the varied initiatives as a midteen pricing opportunity.
Accessorial revenue increased by double digits in the primary quarter, and shipments with local customers grew 10% because it has added greater than 3,000 local accounts to date this yr.
The bankruptcy of Yellow Corp. (OTC: YELLQ) also presented a pricing tailwind. XPO reprices roughly 25% of its total customer book every quarter, leaving one quarter left to be repriced following Yellow’s exit last summer. Nevertheless, management said it expects to proceed to capture high-single-digit increases on contract renewals for the remainder of the yr given its yield initiatives.
XPO has already opened six of the 28 terminals it acquired from Yellow, with six more coming on line within the second quarter. It is going to open an extra 12 by the tip of the yr, with the rest opening in early 2025. The additions are expected to extend network door count by 10% to fifteen% (17,000 doors in operation at the tip of 2023). The acquired terminals will probably be neutral to OR this yr and accretive to earnings next yr.
The LTL unit recorded an 85.7% adjusted operating ratio, which was 390 basis points higher y/y and 80 bps higher than within the fourth quarter, outperforming the conventional sequential change rate by 120 bps.
Purchased transportation expense as a percentage of revenue was down 250 bps y/y as the corporate continues to cut back third-party linehaul miles. Outsourced linehaul miles stood at 18% within the quarter, which was 370 bps lower y/y. The goal is to cut back outside miles to a low-teen percentage by 2027.
The corporate is forecasting 200 to 250 bps of OR improvement sequentially within the second quarter, or a 400-bp y/y improvement. That suggests a low- to mid-83% adjusted OR, which might come near the outer band of its 2027 goal.
Service enhancements are driving the carrier’s improved yield and price profile. A record claims ratio of 0.3% within the quarter, an eighth consecutive quarter of improving on-time metrics and the rollout of freight airbags at service centers (in use at 75% of terminals currently) were a few of the highlights.
Adjusted earnings before interest, taxes, depreciation and amortization within the unit was $255 million, a 40% y/y increase.
XPO’s European transportation segment saw revenue increase 1% y/y to $797 million. It recorded an adjusted EBITDA margin of 4.8%, which was 10 bps higher y/y.
Shares of XPO were up 6.1% at 11:25 a.m. EDT on Friday in comparison with the S&P 500, which was up 0.9%. Shares of LTL peers were up 1% to 2% after some sold off greater than 20%, following Old Dominion’s (NASDAQ: ODFL) lackluster report last week.
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