The second-quarter operating ratio of the LTL division of XPO Logistics took a significant tumble, deteriorating significantly depending on the measurement.
The non-GAAP adjusted operating ratio in the LTL sector declined to 90.1% from 80.3% in the second quarter of 2019, the company said in releasing its second-quarter earnings. Excluding gains from real estate sales, the OR slid to 91.4% from 81.5% in the corresponding quarter of last year.
Falling revenue was the primary cause of the weakening of the OR. Excluding fuel, revenue at XPO’s LTL division declined to $792 million from $999 million in the second quarter of last year, a drop of 20.7%. That big of a decline could not be offset by a drop in expenses, which was significant but didn’t match the performance of LTL competitor Old Dominion, which saw a more significant drop in expenses.
For example, at XPO, the category of salaries, wages and benefits in the LTL division was down 7.8%, to $416 million from $451 million. That category at ODFL was down more than 13%.
Purchased transportation fell significantly, to $70 million from $108 million. But “other operating expenses” soared to $126 million from $93 million, a 35.5% rise, which helped offset the declines in other key areas on the expense side of the ledger. Meanwhile, a similar-sounding line item for ODFL, operating supplies and expenses, dropped more than 38%.
The big drop in LTL revenue was fueled by a 19% decline in the pounds per day shipped, down to 61.99 million from 76.52 million a year ago. Shipments per day were down 15.1% to 45.6 million from 53.7 million.
Comparisons to the Old Dominion earnings were not favorable to XPO on several other fronts. Revenue per shipment at XPO’s LTL division dropped to $282.61 from $299.48; at Old Dominion, that number posted a small increase.
Weight per shipment — which in the LTL world is not considered necessarily a good thing if it’s rising but is still an important indication — fell at XPO to 1,359 pounds from 1,425. It rose at Old Dominion to 1,636 from 1,553.
Excluding fuel surcharges, gross revenue per hundredweight at XPO was up 1.9%, compared to a 3.9% increase in the second quarter of last year.
One XPO benchmark did show significant improvement: total average load factor. XPO defines that as freight pound miles divided by total linehaul miles. In the quarter, it rose to 24,551 from 23,619.
Overall, XPO lost money in the quarter. It posted a net loss of $134 million for the quarter compared to a $145 million net income in the second quarter of last year.
However, according to SeekingAlpha, the non-GAAP earnings per share figure of a 63-cent loss was better than Wall Street consensus by 14 cents. Revenue of $3.5 billion for the entire company was better than consensus by $130 million.
“The ramifications of COVID-19 dominated the second quarter,” Chairman and CEO Bradley Jacobs said in a prepared statement with the release of the earnings. “Nevertheless, we beat expectations on revenue, adjusted EBITDA and adjusted EPS, and generated notably high cash flow from operations of $214 million and free cash flow of $121 million. Business trends improved across our segments and geographies as the quarter progressed, and continued in July.”
The LTL division is part of XPO’s transportation segment. That group includes brokerage, last mile, full truckload, global forwarding and managed transportation services, as well as LTL.
For the quarter, that group’s operating loss was $15 million, compared to an operating income of $243 million in the same period last year. EBITDA for the group fell to $112 million from $259 million, with adjusted EBITDA declining to $146 million from $362 million.
XPO’s second main segment is the Logistics division. The company describes its activities as “e value-added warehousing, distribution and inventory management, omnichannel and e-commerce fulfillment, order personalization, reverse logistics, cold chain 9 solutions, packaging and labeling, factory support and aftermarket support.”
That group saw its revenue decline to $1.4 billion from $1.526 billion. Its adjusted EBITDA fell to $83 million from $136 million.
XPO will hold an earnings call with analysts on Friday morning.
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