XPO Logistics reported disappointing earnings for the fourth quarter of 2018 and lowered its guidance for 2019 due, in large part, to a sharp drop-off in shipments from its largest customer — believed to be Amazon.com.
The Greenwich, Conn.-based company earned $84 million, or 62 cents a share, in the three months ended Dec. 31, compared with $189 million, or $1.42 a share, in the same period the year prior, which included a $173 million net benefit related to passage of the Tax Cuts and Jobs Act. Revenue was $4.39 billion, up 5% from $4.19 billion.
Equity analysts who follow the company had projected earnings in the fourth quarter in the range of 84 cents a share and revenue higher at $4.56 billion.
CEO Bradley Jacobs said the company missed its earnings and revenue targets because of “headwinds” in France and the United Kingdom, and a decision by the company’s largest customer in mid-December to stop using XPO to process and transport packages to local distribution centers for final delivery by the U.S. Postal Service.
“Two-thirds of that business has gone away,” Jacobs said in a conference call with investment analysts Feb. 15. “So that’s a body blow, no question about it.”
Jacobs said the company will give up $600 million in revenue from the loss of business from its largest customer, but that he expects to recover most of that lost revenue from other customers over the next year.
He said the company’s pipeline of logistics projects remains robust and will continue to be a source for growth, although at a slower pace. Jacobs also highlighted an increase in profitability in the LTL freight business and said he remains committed to offering a broad range of transportation and logistics services to customers.
XPO stock tumbled in early trading after the earnings release, closing at $51.97 per share Feb. 15, down 12.7% from the day before.
To shore up its stock price, Jacobs said the company will spend an additional $1.5 billion to buy back shares and has put a temporary hold on merger and acquisition activity.
Looking ahead, Jacobs said the company reduced its forecast for earnings growth in 2019 to be in the range of 6% to 10%, compared with earlier estimates of 12% to 15%.
“This anticipates the impact of our largest customer substantially downsizing its business portfolio with us starting in the first quarter, as well as our more cautious view of Europe,” Jacobs commented.
XPO also disclosed the closure of two warehouses, including one in Memphis, Tenn., that handled phones for Verizon Wireless that was the subject of a New York Times investigation into discrimination against pregnant workers.
Jacobs said the Memphis warehouse was closed at the customer’s request.
On Feb. 13, XPO announced plans to offer free supplemental health care to new parents and expectant mothers through a partnership with Maven Clinic. The plan will give employees access to more than 1,400 health practitioners through a mobile app and includes fertility, lactation, infant sleep, nutrition and mental health services.
XPO also appointed AnnaMaria DeSalva, a former executive at Pfizer, to a new position as vice chairman of the board of directors, and added Marlene Colucci, executive director of The Business Council in Washington, D.C., as a new independent director.
In breaking down financial results by segment, XPO said its transportation segment, which includes its U.S.-based less-than-truckload freight business, generated operating income of $106 million in the fourth quarter of 2018, compared with $131 million in 2017. Revenue was $2.83 billion compared with $2.78 billion.
Logistics generated operating income of $42 million in the fourth quarter of 2018, compared with $52 million in 2017. Revenue increased 10% to $1.59 billion from $1.45 billion.
For the year, XPO said net income was $390 million, or $2.88 a share, in 2018 compared with $312 million, or $2.45 a share, in 2017. Revenue rose 12.3% to $17.28 billion from $15.38 billion.