Second quarter earnings results issued today by Greenwich, Conn.-based truckload and less-than-truckload (LTL) services provider XPO Logistics again set new company records.
New records were hit for quarterly revenue—at $3.23 billion—up 1.2% annually (and up 11% when excluding the March sale of its intermodal business), with net income—at $141 million—up 19.9%. Operating income—at $230 million—was up 17%. Adjusted EBITDA—at $405 million—increased 18.5% annually, the highest in XPO’s history, well ahead of previous guidance, at $360 million-to-$370 million. And earnings per share—at $1.81—were up compared to $1.00 for the second quarter of 2021, marking the highest for the second quarter ever for XPO. Free cash flow was at $73 million.
Quarterly XPO Logistics performance metrics:
“In the second quarter, all of our reported metrics were ahead of guidance and consensus,” said Brad Jacobs, chairman and chief executive officer of XPO Logistics, in a statement. “It was our company’s ninth straight quarterly beat on adjusted EBITDA. Our North American less-than-truckload network and our tech-enabled brokered transportation platform have tremendous momentum heading into the spin-off, when we expect to separate these businesses into independent companies. Today, we reported the highest adjusted EBITDA of any quarter in our history, and raised our 2022 full year guidance. Our company has a 38% return on invested capital, net leverage of 1.8x, and multiple catalysts for value creation largely independent of the macro. Following the planned fourth quarter spin-off, we’ll become two strong, standalone companies with long runways for earnings growth.”
XPO’s Chief Investor Relations Officer Tavio Headley told LM that all of XPO’s reported metrics were ahead of guidance and consensus for the ninth consecutive quarter, with truck brokerage again sharply outperforming and the LTL business continuing to generate tremendous momentum.
“We are generating cash and that is even after more than doubling our investments into our LTL business,” he said. “So, we more than doubled gross capex and still generated that cash out. Yield, excluding fuel, was up a very healthy 11% [ahead of the first quarter’s 8.6%]. Our LTL contract renewals were up double-digits, and, at the same time, we continue to price ahead of inflation.”
While second quarter LTL tonnage was down 5.5% annually, Headley said XPO saw those declines moderate as the quarter progressed, setting up XPO very well through the remainder of 2022.
“Our strategic initiatives in LTL are going very well,” he said. “In June, we hired the most net new drivers in a single month since July 2021. In the second quarter, we also maintained our highest levels of network fluidity since 2020. If you look at our service levels, going back from now to the end of last year, you are seeing significant improvement. For example, our on-time performance improved year-over-year by 27%. Our charged damage frequency improved 48% year-over-year, and our sales team delivered an all-time record for new business won.”
XPO also nearly doubled the number of trailers it produced compared to the second quarter last year, at its in-house trailer manufacturing facility in Searcy, Arkansas.
Looking ahead to the remainder of 2022 and into 2023, Headley said that XPO is now in phase two of its LTL plan, with what he called a very long runway for increasing XPO’s yield to close the pricing gap.
“We are going to generate more tonnage as we are adding capacity to handle that tonnage,” he said. “And we will benefit from our tech-enabled productivity; you can see that with our piece-level tracking, where customers can benefit from granular visibility into multipiece shipments. We also have tech initiatives that have to do with the linehaul, as well as optimizing our pickup and delivery and our dock productivity.”
On the truck brokerage side, Headley explained that the 16% annual increase in loads moved marked the seventh consecutive quarter the segment has generated double-digit volume growth, with truck brokerage revenue up 24% to $755 million, with gross profit dollars up 76% annually.
“We continue to outperform the industry across a slew of metrics, and I have to give credit to our technology,” he said. “The investments we have made in tech going back to 2011, continue to pay off. In the second quarter, the number of loads that we’ve created or cover digitally rose to 80%. It was 74% in the first quarter. On the capacity front, the number of carriers on our XPO Connect platform increased from 88,000 in the first quarter to 98,000 in the second quarter, a 47% annual increase. By leveraging our technology, we are also seeing a very favorable business mix within truck brokerage. In the quarter, our business was 73% contract versus 27% spot.”
He noted that the higher contractual mix allows XPO to expand margins as it encounters a looser market, calling the market relatively tight but now as tight as it was at this time last year.
“We have the lane density and the scale, and we can get access to this massive capacity, and that is what is driving the results,” he said.
Addressing XPO’s spin-off of its truck brokerage and asset-light transportation units into a new company, RXO, which is expected to be made official in the fourth quarter, Headley said it is very much on track.
“RXO has a great leadership team, access to more than 1.5 million trucks and 98,000 carriers, and its technology is layered in on top of that,” he said.