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First-quarter profits and revenue at XPO Logistics Inc. fell as the effects of the coronavirus pandemic took a toll on the less-than-truckload carrier and logistics company in March.
“We had a strong January and a strong February. Then the pandemic sharply disrupted our end market. It started with our European operations in early March and began to affect parts of our North American business later in the month,” Bradley Jacobs, XPO’s chairman and CEO, said during a May 5 conference call with analyst and investors.
The Greenwich, Conn.-based company posted net income of $25 million for the quarter, a 51% decline compared to $52 million a year earlier. Diluted earnings per share fell to 20 cents from 37 cents a year earlier. Revenue dipped to $3.86 billion, 6.3% percent lower than the $4.12 billion logged in the same period in 2019.
In response to the downturn, Jacobs said XPO quickly took two significant actions. For one, it scuttled a plan announced earlier this year to review strategic alternatives, including the possible sale or spinoff of one or more of its business units. It also created a plan to support its workforce amid the pandemic.
XPO created a health protocol for its workers that included a tracing system for people who might have been exposed to COVID-19. It also launched a deep cleaning regime for its facilities.
Additionally, XPO established front-line appreciation pay for nearly 40,000 employees in the U.S. and Canada. Hourly employees in its warehouses receive an extra $2 per hour on top of their regular pay rate. Later this month, full-time employees working in its less-than-truckload service centers will receive a one-time bonus of $500 and part-time employees will receive a $250 bonus.
The logistics company also will provide two weeks of additional paid pandemic sick leave to employees who need it, and has expanded mental health programs for employees and dependents. “We expect expenses related directly to these efforts of up to $50 million or more in the second quarter, and it’s hard to imagine a better investment,” Jacobs said.
XPO also worked to improve its cash position. In April, the company issued $850 million of 6.25% senior notes maturing in 2025 and added a new $350 million senior secured credit facility. As of the end of the first quarter, XPO had total cash and borrowing capacity of $1.3 billion.
“The survival of the company was the first thing that we thought about in the same breath as the survival of our employees,” Jacobs said. “We wanted to load up on cash. It’s hard to go broke when you have two and a half billion dollars in liquidity.”
Morgan Stanley analyst Ravi Shanker said the company is in good financial shape to weather a global recession. “We believe near-term concerns about extreme pressure on earnings and liquidity given the company’s high Europe and LTL exposure are unfounded as evidenced by the decent 1Q results,” Shanker wrote in a May 5 report for investors.
Revenue in XPO’s transportation segment slid 7.5% to $2.46 billion compared with $2.66 billion a year ago. XPO attributed the decrease to declines caused by the pandemic and the loss of business from its largest customer — believed to be Amazon.com. XPO has not disclosed the customer. The segment’s operating income dipped 6.3% to $120 million in Q1 from $128 million a year earlier.
Revenue for XPO’s logistics business fell 3.4% to $1.44 billion from $1.49 billion in Q1 2019. The company said the decline reflected its elimination of certain low-margin business and the negative impact of COVID-19 in Europe. Once again, the downsizing of business from the company’s largest customer played a role, XPO said. The segment’s operating income dropped 17.4% to $38 million in the first quarter 2020 from $46 million a year earlier.
Although much of its business is down, XPO is seeing some bright spots in April.
“E-commerce saved us in April,” Jacobs said. “It was actually going up and most of everything else was going down.” He noted there may be areas of growth from changes in consumer behavior compelled by the pandemic. For example, he said people are ordering exercise equipment, goods for gardening and home improvement projects, appliances and home electronics online. XPO’s food and beverage freight business also was strong.
“Even against the current backdrop, we’re on track to generate hundreds of millions of dollars of free cash flow this year. We’re ready to serve customers through the fits and starts of the recovery, however long it takes, with our e-commerce capabilities, intelligent automation in our warehouses, a digitally connected transportation platform and keen visibility into operating data,” Jacobs said.
XPO ranks No. 1 on the Transport Topics Top 50 list of the largest logistics companies in North America and No. 3 on the TT Top 100 list of the largest for-hire carriers.
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