XPO Logistics reported a net income of $312.4 million for the full year in 2017, a sharp increase from a net income of $63.1 million the previous year, according to the company’s most recent financial statements.
The Greenwich, Conn.-based less-than-truckload (LTL), last-mile and third-party logistics provider posted earnings per diluted share of $2.45 per share for the year, compared with $0.53 per diluted share in 2016, as revenues increased 5.2 percent to $15.38 billion. Excluding $431.9 million in 2016 revenue derived from XPO’s North American truckload division, which it acquired in October 2015 as part of a $3 billion deal for Con-way and then sold a year later for $558 million, revenues rose 8.4 percent year-over-year.
Top line earnings and revenue growth were helped by a fourth quarter in which XPO posted a net income of $188.5 million ($1.42 per diluted share) compared with $27.3 million ($0.22 per diluted share) in the fourth quarter of 2016. Adjusted EPS stood at $0.45 per diluted share for the quarter, beating consensus analyst EPS projections by $0.02 per share, while revenues climber 13.9 percent year-over-year to $4.19 billion, beating expectations by $300 million, according to investment advisory Seeking Alpha.
The strong performance was driven by a multitude of factors, including strong economic growth in the United States and Europe, booming e-commerce volumes and $2.8 billion in new business, according to XPO CEO Brad Jacobs.
“I’m pleased that we beat fourth quarter expectations for revenue, EPS, adjusted EBITDA, cash flow from operations and free cash flow,” Jacobs said of the results. “We generated outsized organic revenue growth of 10.4 percent, led by gains in freight brokerage, last mile and contract logistics. A strong holiday peak played directly to our strengths in e-commerce.”
In an interview with American Shipper, Jacobs said the company is focused on growing the business, both through organic investment and getting back to its M&A roots.
The company added 90 new LTL sales representatives in the last 60 days and plans to add another 80 in the next 60 days, as well as opening several new LTL facilities in North America and Europe.
“Our North American less-than-truckload unit increased operating income by 44 percent year-over-year and improved its adjusted operating ratio to 89.9 percent, the best fourth quarter ratio in 12 years,” said Jacobs.
In XPO’s growing contract logistics business, Jacobs said the company had 25 new implementations alone in the fourth quarter and anticipates as many as two per week in the first quarter of 2018.
“We’ve entered 2018 with a global sales pipeline of $3.2 billion, following a record $2.8 billion of new business signed in 2017,” he said.
In addition, he said the company still hopes to make one or two large scale acquisitions by the end 2018, discussions for which have been ongoing since mid-2017, to further grow the business.
Jacobs also noted that in 2017 XPO’s e-commerce shippers were the fastest growing customer segment, surging more than 20 percent year-over-year. He said 29 percent of XPO’s sales come from e-commerce and that is expected to grow to over one-third of overall sales in the next few years.
Much of this growth can be attributed to a growing economy in both the United States and Europe, which drives consumer spending, but Jacobs says it’s XPO’s technology platform that gives it an advantage over its competitors.
Jacobs said XPO is boosting its investment in technology to over $450 million in 2018 – up from around $225 million in 2015 – and will focus that investment in four primary areas robotics and automation, big data, visibility and customer service, and its digital freight marketplace.
“Our customers come to us because of our technological advantage,” he said. “This really is our ‘secret sauce,’ our competitive advantage. We focus on areas of technology that have the greatest impact for our customers.
“We’ve deployed robots and drones in warehouses; we have 1,700 full-time IT professionals, over 100 of which are data scientists using AI and machine learning models to improve demand forecasting; two-thirds of all our business is automatically tracked for our customers now; and our digital freight marketplace is constantly improving to find the best carrier for the load using our proprietary capacity algorithms.”
The sizable investment budget and “intense” feedback loop with customers allows XPO to stay ahead of the curve, as well as the myriad supply chain technology startups and tech-focused logistics providers out there in the market, Jacobs said.
And like most U.S.-based companies recently reporting Q4 earnings, XPO is expecting an extra boost of $175.4 million to its full-year net income from the recent reduction of the federal corporate tax rate from 35 percent to 21 percent, as well as other “discrete tax-related adjustments.”
Jacobs said XPO expects a $75 million free cash benefit from the U.S. tax reform legislation in 2018, but that the company will invest far more than that in its employees over the course of the year.
“We’re giving out $125 million in bonuses to over 20,000 employees, more than $190 million in raises and increasing our 401k matching, partly because of the expected benefit of the tax rate reduction, but in large part because the business is performing well and the economy is performing well,” he said.
Looking ahead to 2018, XPO reaffirmed its full-year target for adjusted EBITDA of at least $1.6 billion, up from $1.37 billion this year, and raised its 2017–2018 cumulative free cash flow target from approximately $900 million to $1 billion.
“We expect to increase adjusted EBITDA by at least another 17 percent and deliver about $625 million of free cash flow this year, while investing heavily in technology and sales force effectiveness,” said Jacobs.
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