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XPO Logistics’ 2Q17 Earnings Disappoint: Stock Moves Sideways

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Part 5
XPO Logistics’ 2Q17 Earnings Disappoint: Stock Moves Sideways PART 5 OF 6

XPO Logistics: Logistics Segment Drives Earnings in 2Q17

XPO’s Logistics’ 2Q17 EBITDA

In the previous part of this series, we assessed the Logistics segment of XPO Logistics (XPO). Here, we’ll examine XPO’s EBITDA (earnings before interest, tax, depreciation, and amortization) levels in 2Q17. The company generated adjusted EBITDA of $370.8 million in 2Q17 against $354.9 million in the second quarter of 2016. That results in a year-over-year growth of 4.5%.

XPO Logistics beat analysts’ estimated EBITDA marginally by 0.40% in the second quarter of 2017.

XPO Logistics: Logistics Segment Drives Earnings in 2Q17

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The Transportation segment’s adjusted EBITDA rose to $283.0 million, a 2.5% rise in the second quarter of 2017. The segment’s operating profit expanded 4.4% to $160.0 million. That same quarter, the Logistics vertical saw its adjusted EBITDA rise 15.1% to $123.0 million. The segment’s operating income rose 25.8% to $64.0 million.

In its 2Q17 earnings conference call, CEO (chief executive officer) and chair Bradley Jacobs stated, “Our strong start to the year accelerated in the second quarter, with record results for revenue, net income and adjusted EBITDA.”

He further stated, “Importantly, we’re continuing to grow adjusted EBITDA faster than revenue in both transportation and logistics. In North American less-than-truckload, we increased volume while improving the adjusted operating ratio to 84.6%. This is the best quarterly adjusted operating ratio for our LTL business in at least two decades.”

Management outlook in 2017

XPO Logistics’ worldwide revenue pipeline stands at $3.3 billion. The company plans for a cost reduction in labor and procurement. Optimum asset utilization along with back office productivity should result in productivity gains for the company going forward. Riding on a cost curtailment drive, XPO aims for an adjusted EBITDA of $1.4 billion in 2017 and $1.6 billion next year. In 2018, the company expects to attain 10.0% EBITDA margins.

Peer group operating margins

Almost all the major trucking companies are cutting costs in order to adjust freight volumes in 2017. Let’s take a look at the operating margins for XPO’s peers in 2Q17 compared to 2Q16.

  • Old Dominion Freight Lines (ODFL): 19.1% compared to 16.2%
  • FedEx (FDX): 10.0% compared to 8.4%
  • Saia (SAIA): 8.3% compared to 6.5%
  • YRC Worldwide (YRCW): 4.0% compared to 4.7%

Investors can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP), which is a growth ETF. Prominent companies in diverse industries are included in RSP’s portfolio holdings.

In the next and final part of this series, we’ll see if analysts’ recommendations have changed for XPO after its 2Q17 results.

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