Third-party logistics provider RXO grew brokerage load counts again in the third quarter but noted some softening during October.
RXO (NYSE: RXO) reported Tuesday a net loss of 1 cent per share for the 2023 third quarter, which included a 6 cent headwind from transaction and restructuring costs tied to the spinoff from XPO (NYSE: XPO) a year ago. Adjusted EPS was 5 cents excluding the items, 4 cents higher than the consensus estimate but 29 cents lower year over year (y/y).
“While RXO’s results improved as the third quarter progressed, the market remains soft and we’re monitoring the freight markets closely,” said CEO Drew Wilkerson. “We’ll continue to follow our playbook of taking profitable market share while controlling costs and making strategic investments in our business.”
The company’s largest segment, truck brokerage, saw revenue decline 14% y/y to $591 million.
Total brokerage volumes were up 18% y/y with truckload volumes 13% higher. Loads per day grew in every month of the quarter with contractual volumes up 30% y/y. A drop in revenue per load bridged the gap between the volume increase and the revenue decline. A shorter length of haul, unfavorable mix and lower fuel surcharges were headwinds. Excluding those items, revenue per load was off y/y by a mid-teen percentage.
Brokerage gross margin was 15.1%, down 390 basis points y/y, but improved 100 bps in each month of the period. The company said gross profit per load bottomed in July to the lowest level seen since the second quarter of 2017. The metric increased by more than 20% from July to September. Gross profit per load in October was level with September.
Ninety-seven percent of brokerage loads were created or covered digitally in the third quarter compared to 81% a year ago. RXO said 77% of carriers that used the platform returned to it within a week.
The company continues to take market share and said less-than-truckload volumes increased 55% y/y in the quarter. RXO’s sales pipeline is 115% higher than it was two years ago as it grew brokerage head count again in the quarter.
“Our strategy has always been during this part of the cycle that we’ll grow and we’ll build our foundation,” Wilkerson told analysts on a Tuesday call. “We’ll prepare ourselves for the inflection and to show the power of the model and the earnings when the market inflects.”
The company likes “to stay staffed for growth of 15% overnight if we need it,” Wilkerson said. “When the market turns, as you’ve seen us do before, we’ll be able to handle the volume.”
RXO expects volumes to be up again in the fourth quarter but at a slower pace than in the third quarter.
It noted load-to-truck ratios improved from 2-to-1 earlier in the year to 3-to-1 by the end of the third quarter and that customer inventory positions have been rightsized. However, management did say October was softer and that minibid activity increased. RXO’s brokerage volumes were up in October but by lower percentages. Truckload volumes increased by mid-single digits while overall brokerage loads were up double digits.
The company expects declines in revenue per load to again moderate in the fourth quarter.
Consolidated adjusted earnings before interest, taxes, depreciation and amortization equaled $26 million in the quarter, a 61% y/y decline. Adjusted EBITDA is expected to increase 20% sequentially in the fourth quarter even though the company expects a “muted peak season.” RXO has taken $31 million in cost savings on an annualized basis so far this year.
Net debt leverage increased to 2.1 times adjusted EBITDA from 1.6 times last quarter. The increase was due to a reduction in EBITDA and a $19 million increase in net debt to $350 million. Total liquidity remained above $600 million.
Shares of RXO were off 2.1% Tuesday at 10:10 a.m. EST compared to the S&P 500, which was up 0.1%.
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