Despite overall revenue growth of 18.9% y-o-y to $2,846m, operating profit fell sharply by 24.2% to $75m in the second quarter of the year at global 3PL GXO Logistics.
Europe still biggest breadwinner
Around two thirds of its business is in Europe and the UK and where there were some significant business wins – notably in Germany with the Levi’s contract announced in May – but the newly completed acquisition of Wincanton hit profits hard. Chief financial officer Boris Oran said, “This quarter [the acquisition] was a drag on our margins and I expect that drag to slightly increase into Q3 and Q4 [as consolidation takes place], but this will turn into a tailwind in 2025.”
Where there is short term pain from the acquisition, CEO Malcolm Wilson is confident of long term gain. He added, “We’ve acquired a platform to expand our presence in target verticals across the UK and Europe, including aerospace and defence and industrials.” This is exemplified in the 22.6% y-o-y revenue growth in the Industrial and Manufacturing vertical for the company, with revenues up to $331m in the quarter.
The UK and Europe as a geography is GXO’s largest income stream, and thanks to the Wincanton acquisition the company saw a 44.3% growth in revenues in the UK to $1,289m. At the same time it began operations in Germany. Wilson said, “We’ve gone live on the 20-year, nearly $1bn contract with Levi’s we announced in May,” adding, “During the quarter we signed a new deal with Tchibo, a leading German retailer and coffee distributor.”
Though based in Connecticut, the company’s inorganic growth strategy has led it to generate the majority of its revenues in Europe and just 26% of its revenues from the United States. The USA saw 5.6% y-o-y growth to $731m. The CEO spoke of uncertainty at that side of the Atlantic. However, he said, “What we are seeing is a tremendous amount of new business growth… We’ve signed more new business in [North America] and I think we’re on for a record,” in terms of new business signings in that geography.
E-commerce returns to sustainable growth
Among its key verticals, Food & Beverage saw a 2.6% decline in revenues to $326m where Omnichannel Retail saw 28.3% growth in the quarter to $1,316m. Wilson is optimistic, particularly with the omnichannel retail vertical, adding “At an industry level, e-commerce has returned to sustainable structural growth.”
Across the board, organic revenue growth doesn’t even come close to that generated from GXO’s acquisition strategy. Just 2% of its year over year revenue growth being from organic growth yet 17% from inorganic growth. Wilson explained that from his viewpoint, “What we’re seeing is modest growth in customer volumes compared to the last quarter,” however, “Our core volumes do remain relatively sluggish and generally flat year over year.”
As things stand, the leadership at GXO Logistics are still confident of their end of year guidance that remains:
Though there is uncertainty around the US economy in a large part due to the Presidential Election, GXO is more exposed to Europe where things certainly seem to be improving at a macroeconomic level. There are uncertainties here but the underlying improvement across key economies seems to be solid, and as such GXO’s bias in its revenue stream to this side of the Atlantic could well benefit it.
Source: GXO
Author: Richard Shrubb
