XPO Logistics, Inc. (NYSE:XPO) did its best in the first quarter to make investors forget about the quarter that had come before.
The transport and logistics giant reported first-quarter revenue of $4.12 billion, slightly below the $4.19 billion in the year-earlier period. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $343 million, a first-quarter record for the company but which included a $21 million gain from asset sales, according to Amit Mehrotra, analyst for Deutsche Bank. Customer wins in the quarter totaled $1.1 billion, an all-time quarterly record, and a 15% year-over-year gain, the company said. About $4.1 billion in potential sales are currently in XPO’s pipeline, which spans North America and Europe.
In the eyes of XPO Chairman and CEO Brad Jacobs, who took a lot of heat for the company missing its targets in the past two quarters, and especially in the fourth quarter when it also lowered full-year expectations, the first-quarter results demonstrated its resilience. “We’ve got our mojo back,” he said in an interview after the financial markets closed Wednesday.
In a note Wednesday evening, Mehrotra said the quarterly results were in line with expectations and better than some had feared. The first quarter marks what Mehrotra called the “first phase” of a multi-quarter effort to rebuild the company’s credibility with analysts and investors after a period of disappointments for a company that hasn’t had many in its 8-year history. The analyst remains bullish on XPO, saying the elements that have led to strong multi-year performance are still in place.
The company maintained its full-year guidance of 3% to 5% revenue growth and adjusted EBITDA of between $1.65 billion and $1.725 billion. XPO adjusted its 2019 full-year guidance downward in large part because its largest customer, which was not identified but is widely known to be Amazon.com, Inc. (NASDAQ:AMZN), was pulling $600 million in business, or two-thirds of its total annual spend with XPO. About $200 million left in the fourth quarter of 2018, with the balance expected to depart by the end of this quarter.
Approximately two-thirds of the lost business, or about $400 million, has already departed, XPO said Wednesday. The financial impact in the first quarter resulted in a 2% hit to both revenue and EBITDA, Jacobs estimated.
First-quarter net income fell to $43 million from $67 million. On an adjusted basis, net income fell to $59 million from $81 million. Diluted earnings per-share came in at 37 cents, down from 50 cents, while on an adjusted basis, diluted EPS dropped to 51 cents from 61 cents. Aside from the lost customer business and unfavorable currency exchange rates, the company paid taxes at a 27% effective rate in the quarter. By contrast, the company paid no taxes in the 2018 quarter due to a slew of tax rebates.
Revenue for the company’s transportation segment dipped to $2.66 billion from $2.77 billion, hurt by the big customer’s withdrawal of freight brokerage and postal injection business, the latter being where XPO moved parcels from fulfillment centers to local post offices for delivery to residences. Yield in the company’s North American less-than-truckload (LTL) business climbed to 3% year-over-year, a figure that excluded fuel. That nearly tripled the year-over-year yield reported in the fourth quarter of 2018, XPO said. North American LTL’s operating ratio, the ratio of revenues and expenses, fell on an adjusted basis to 87.6%, its best first-quarter ratio since 1999.
Logistics segment revenue rose 3.2% year-over-year to $1.49 billion, paced by gains in various verticals including e-commerce, food and beverage, and aerospace, XPO said.
Perhaps the best story of the quarter for XPO was freight brokerage, where net revenues, or revenue after the cost of purchased transportation, rose 9.5% and net revenue margins increased by 420 basis points. Jacobs said the gains were particularly impressive in light of the lost brokerage business from its largest customer. He declined comment on Amazon’s recently reported plans to establish a freight brokerage operation.
The macroeconomic environment remains, on balance, favorable to transport and logistics providers, Jacobs said. The world economy is still growing, albeit at a slower pace than this time in 2018, he said. The U.S. remains strong, while France and the U.K. are slightly softer, and Spain is stable, he said.
The company has guided to about $575 million in free cash flow for 2019. Jacobs would not be pinned down on how the company would deploy it. Earlier this year, XPO said it would forego M&A activity and use its capital to repurchase its shares, which at the time were trading in the low $50 a-share range. From mid-December through the end of April, the company re-purchased the equivalent of about one-quarter of its market capitalization.
XPO shares ended today’s trading at $67.13 a share, down 95 cents. Shares were trading fractionally lower in after-hours trading.