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Growth in North American Logistics Boosts XPO’s 3Q16 Revenues

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Nov. 8 2016, Updated 10:05 a.m. ET

XPO’s 3Q16 revenues

In 3Q16, XPO Logistics (XPO) reported quarterly revenues of $3.7 billion. In contrast, Wall Street analysts estimated revenues of $3.8 billion. On the revenue front, XPO missed the analysts’ estimates by 4%. Over 3Q15, the company’s revenues grew by 57.2% in 3Q16 due to acquisitions last year. Notably, the company’s organic revenue growth was 7% in the reported quarter.

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Revenue growth and segments

XPO witnessed robust organic revenue growth in the Last Mile and Supply Chain operations in North America as well as Europe. However, the weak intermodal markets coupled with asset-based truckload operations negatively affected revenue growth.

The Last Mile revenues rose 14.5% in 3Q16 on a year-over-year basis. High volume resulting from new contract start-ups in e-commerce was the fundamental factor behind the Last Mile revenue growth. Better carrier utilization and benefits from higher network density increased the Last Mile net revenue margin by 50 basis points in the latest reported quarter of 2016.

Much of the growth in the top line is attributable to XPO’s transportation business. Geography-wise, the revenues in North American operations grew much faster than the European operations. The North American Logistics revenues doubled due to the Con-way acquisition in 2015.

XPO mainly operates in two segments: Transportation and Logistics. The Transportation segment accounted for roughly 65% of proforma gross revenues including the impact of acquisitions. The Logistics segment contributes ~35% of the proforma gross revenues. For 2017, XPO targets a revenue of $15.0 billion.

Peer group comparison

On a sequential basis, XPO’s revenues grew 0.8% in 3Q16 compared with 2Q16. However, none of the companies in the peer group had made acquisitions as XPO did. The peers’ 3Q16 revenue changes compared with the corresponding period last year were as follows:

  • J.B. Hunt Transport Services (JBHT) reported a 7% rise.
  • C.H. Robinson Worldwide (CHRW) reported a 1.9% fall.
  • Old Dominion Freight Line (ODFL) reported a marginal rise of 0.4%.
  • YRC Worldwide (YRCW) reported a fall of 4.4%.

Investors opting for exposure to transportation and logistics stocks can invest in the Industrial Select Sector SPDR ETF (XLI). This ETF invests ~9% in major US road and rail companies and 5.6% in airlines.

Next, we’ll review XPO’s 3Q16 transportation business segment and the management’s outlook.

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