XPO Logistics Posts Record Results in Second Quarter

CFO John Hardig to Leave Company Aug. 15
XPO Logistics CEO Brad Jacobs
XPO Logistics CEO Brad Jacobs. (CNBC via YouTube)

XPO Logistics posted its best-ever second quarter as a strong economy generated demand for freight hauling and logistics services, and the company was able to capitalize on a shift toward greater outsourcing of transportation by shippers.

The Greenwich, Conn.-based company also announced that Chief Financial Officer John Hardig will leave Aug. 15 to spend more time with his family. Hardig has served as CFO since February 2012, and he will stay on in an advisory capacity through Sept. 15.

Sarah Glickman, senior vice president of corporate finance will take over as acting chief financial officer, company officials said, while a search is conducted for a permanent replacement.

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Hardig is the second senior executive to leave XPO in recent weeks. Tony Brooks, who headed the less-than-truckload business in the United States, left in July and was replaced on an interim basis by Kenny Wagers, who joined XPO as chief operating officer in April.

In an interview with Transport Topics, CEO Brad Jacobs praised Brooks for the job he did and said the focus is shifting from cost control to increasing sales.

The LTL business achieved an adjusted operating ratio of 84.3% in the second quarter, its best performance in 30 years, and Jacobs said he expects to see additional gains of between 150 and 200 basis points by the end of this year. The operating ratio is calculated by dividing total revenue by total operating expenses and is a key measure of profitability for trucking companies.

Compared with other publicly owned LTL carriers, Old Dominion Freight Line has reported the lowest operating ratio so far at 78.7% based on results in the second quarter.

“We’ve brought our LTL operation a long way forward since we acquired the business in October 2015,” Jacobs noted in a conference call with investment analysts after the release of earnings Aug. 1. “The business is on track to generate over $1 billion of earnings before interest, taxes and depreciation within three years.”

XPO ranks No. 3 on the Transport Topics Top 100 list of largest for-hire carriers in North America and is the third-largest carrier in the LTL sector after FedEx Freight and YRC Worldwide. XPO also ranks No. 1 on the Transport Topics Top 50 list of largest logistics companies in North America based on net revenue from warehousing and distribution, freight brokerage and ocean and air forwarding operations.

In its second-quarter financial statement, XPO reported net income of $137.5 million, or $1.03 a share, in the three months ended June 30, compared with $47.6 million, or 38 cents a share, in the same period a year ago.

Increased shipping volume and higher prices lifted total revenue to $4.4 billion in the quarter, up 16% from $3.8 billion a year ago.

Jacobs cited a record 37 new customer start-ups in the past three months and $2.1 billion in new business in the first six months of 2018. Much of the new business is related to development of distribution centers to handle sales of products purchased online. Over the past year, XPO has added more than 21 million square feet of space to its contract logistics business unit, Jacobs noted.

XPO has extensive freight operations in Europe as well as North America, and the company is experiencing growth in every country where it operates.

“We don’t see demand slowing,” Jacobs said.

About 60% of XPO’s revenue is generated in the United States, and the company operates in 32 countries.

While trade sanctions, inflation and rising interest rates represent threats to growth, Jacobs said that, for now, there is “no likelihood of a global economic slowdown.”

In fact, capacity is not keeping up with increasing demand for transportation services, which means, according to Jacobs, freight carriers will be able to haul more freight at higher prices for the foreseeable future.

In the first six months of 2018, XPO generated net income of $204.4 million, or $1.55 a share, compared with $67.1 million, or 54 cents a share, in the same period a year earlier. Revenue climbed 17.2% to $8.6 billion in the first half of 2018 from $7.3 billion in the same period in 2017.