Despite mixed Q2 earnings, XPO Logistics remains on strong growth path

 XPO Logistics, a non asset-based 3PL, reported strong second quarter earnings last night, with total gross revenue rising 109.3 percent annually to $1.2 billion and net revenue up 317.2 percent to $508.6 million.

Even with the gross revenue and net revenue gains, XPO had a $78.8 million net loss compared to a net loss of $13.8 million for the second quarter of 2014. But adjusted EBITDA jumped up to $79.7 million, topping last year’s $14.3 million, with recent acquisitions of Lyon, France-based 3PL Norbert Dentressangle for $3.53 billion in and Bridge Terminal Transport, an asset-light drayage provide for $100 million, representing $34.3 million in adjusted EBITDA. And on an earnings per share basis XPO’s net loss was $75.1 million, or $0.89 per share, compared to a loss a $0.28 per share a year ago.
XPO’s transportation segment, which is comprised of truck brokerage, intermodal, last-mile, expedite, and freight forwarding, had gross quarterly revenues of $861.2 million for a 48.2 percent annual gain, which was largely due to its acquisition of Norbert Dentressangle, coupled with 4 percent organic growth or 10 percent organic growth, excluding the impact of lower fuel prices. Net revenue margin for the group was 22.5 percent, up slightly from 21 percent in 2014 and was due to organic margin improvements in its truck brokerage, last mile and expedite businesses and the aforementioned acquisitions. EBITDA for the group was at $52.1 million, ahead of last year’s $27.9 million.
XPO’s logistics business, which is comprised of contract logistics and related supply chain services, had $359.6 million in gross revenue, net revenue at $314.0 million, EBITDA at $30.9 million, and operating income at $4.3 million.
XPO Chairman and CEO Brad Jacobs said the outlook for the logistics market in Europe is positive, with Spain, the Netherlands, France, and England all seeing gains, with the second half of 2014 looking to be stronger in the contract logistics market than the first half, he said.
And the North American contract logistics pipeline is also strong, too, with the company’s first big contract logistics cross-sell, through the Norbert acquisition, with the pending opening of a new Pennsylvania-based facility to serve the U.S. footprint of a large Spanish-based retailer that has been served by Norbert for several years.
XPO said that for the first six months of 2015 it has $1.2 billion in cash, with total revenue of $1.9 billion for the same period, which represents a 122.2 percent annual increase. The company also issued new long-term targets for the full year 2019, with revenue at roughly $23 billion and EDITDA at roughly $1.5 billion.
Jacobs told LM that the company is continuing to grow at a fast clip, as evidenced by more than doubling second quarter gross revenue and the gains in net revenue and EBITDA.
Margin improvement in XPO’s truck brokerage group was cited by Jacobs as a growth driver in the quarter, going 13.5 percent last year to 14.6 percent this year, with the company now producing the highest brokerage margins it has ever had.
“The spot market was relatively soft in the second quarter and still is,” he said. “Capacity is looser than it was a year ago, and as a result rates are down on a year-over-year basis. Shippers this year are generally putting more of their freight on contracts rather than the spot market, and routing guide compliance by carriers is much higher now than a year ago, nearly 100 percent in some cases. Our costs of purchased transportation have improved, and we have been able to grow our business substantially in this environment. The power has shifted from carriers to shippers over the last 12 months. Extremely tight capacity, and carriers raising rates characterized the first half of 2014, but now it has turned a bit at least for the time being, but it will turn again with capacity getting extremely tight again. The long-term trend is decreasing capacity and more tightness, due to regulatory and demographic factors, with capacity being taken out. But hopefully the economy will be better and there will be more demand in the coming years. 
In Europe, he said the integration of Norbert is going “better than expected,” adding that XPO has an active two-part pipeline of both European and North American acquisition opportunities.
“We are a big contract logistics player in Europe, and there are other contract logistics companies there that are available and for sale,” he said. “We have discussions going on with them. In last mile, there are no big providers in Europe like there are in the U.S. It just doesn’t exist and is very fragmented and has regional players. There are last-mile opportunities there…but they are relatively small acquisitions and there is no big platform for large deals there. It is the same with intermodal, as there is no highly developed intermodal infrastructure in Europe. The rail infrastructure there has not been developed or regionalized. We do have discussions going on with truck brokerages over there, with the brokerages there integrated with asset-based truckload carriers like you see here with companies like Werner, Swift, and Knight. We are also talking with expedited companies over there, too, which are not big but meaningful in terms of getting into the market over there.”