XPO Reports Revenue Increase Despite Tough Conditions
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XPO posted an increase in revenue but a dip in profit during the third quarter amid a challenging freight environment, the company said Oct 30.
The Greenwich, Conn.-based less-than-truckload carrier posted net income of $86 million, or 72 cents a diluted share, for the three months ended Sept. 30. That compares with $92 million, or 79 cents a share, during the same time last year.
Total revenue increased by 1.7% to $1.98 billion from $1.95 billion, while earnings before interest, taxes, depreciation and amortization (EBITDA) increased 6.1% year-over-year to $278 million from $262 million.
The company’s Q3 results surpassed expectations from Wall Street analysts, who had been looking for 63 cents per share and quarterly revenue of $1.91 billion, according to Zacks Consensus Estimate.
“It was a great quarter in what’s definitely a soft environment for freight transportation,” Ali Faghri, chief strategy officer at XPO, told Transport Topics. “There’s not many companies that are growing both revenue and EBITDA in this environment so that was great to see. You look at our LTL segments, we’re taking market share. Shipment counts were up in high single digits, tonnage was up low single digits.”
Faghri believes capacity investments XPO has made over the last two years played a key role in Q3 performance. The company has added over 10,000 trailers, 2,000 tractors and 500 new doors in the last two years since starting its LTL 2.0 performance improvement strategy.
“That incremental capacity was critical in allowing us to be able to absorb this incremental volume during this period of industry disruption more recently, with one of our competitors shutting down operations,” Faghri said. “I think that the investments are a key part of it. Also, we’ve made a bunch of changes last year to [incentivize] compensation for the entire field.”
For example, he noted that XPO began adding service quality into incentive compensation plans for thousands of employees, an approach that he said has helped incentivize workers to focus more on service quality. He believes this was a key enabler for the company being able to reduce the number of damage claims it receives from customers.
“What I think we’re most proud of is the record service that we delivered in the quarter,” Faghri said. “Our claims ratio for damages — which is a key service metric that we track here — came in at 0.4%. That’s a company record for us. If you go back two years ago, when we started this LTL 2.0 strategy, that number was at 1.2%. So, we’ve been able to cut that claims ratio by more than half over the last two years.”
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Faghri noted that the company sequentially improved its Q3 operating ratio by 140 basis points to reach 86.2. He also cited technology investments that helped XPO better track how employees are loading trailers, and use that data as a coaching tool.
The company’s North American LTL segment revenue for Q3 increased 1.9% to $1.23 billion from $1.21 last year. On a year-over-year basis, shipments per day increased 7.8%, tonnage per day increased 3.1% and yield increased 6.4%. Operating income decreased 0.6% to $161 million from $162 million last year.
European Transportation segment revenue increased 1.5% to $752 million from $741 million during the prior-year quarter. Operating income fell by 20% to $8 million from $10 million last year. “
J.P. Morgan analyst Brian Ossenbeck in a report said the company’s North American unit “easily outperformed expectations,” noting that XPO dispelled notions of service disruptions in the wake of industry volatility caused by the shutdown of LTL carrier Yellow by disclosing its improved damage claims ratios.
XPO ranks No. 5 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.