Full year operating profit at global contract logistics player GXO fell 31.4% y-o-y to $218m, while revenues grew 19.7% to $11,709m in the period. Q4 operating profit however grew 16.1% y-o-y to $101m on revenues that grew by 25.5% to $3,250m. Resulting operating profit margin has thus fallen by 0.29 basis points to 3.11% in Q4 and 1.44 basis points in in the full year to 1.86%. Growth continues to be from non-organic sources, with just 3% of new revenue from organic growth.
Tax worries impact UK customers
Though based in the USA, the highest proportion of GXO’s income stems from the UK, and if the Wincanton acquisition goes ahead this is set to grow even more. In Q4 UK revenues grew by 57.0% to $1,521m and over the year a still-considerable 43.2% to $5,248m.
According to the company there have been wins and losses in the UK market. At least one legacy customer realigned their business with GXO and the planned UK employment tax rate increase has shaken many large UK retailers. GXO CEO Malcolm Wilson said of this, “Our UK business has softened a little bit thanks to the retail environment and that’s a consequence of the recent government budget. Many of our customers are still working out the consequences of the higher employment tax rates and they’re cautious about things going forward.”
Though GXO has signed a non-disclosure agreement as to the name of the company, one of the big contract wins of the year was a $2.5bn contract in the healthcare vertical. This stemmed from its 2022 acquisition of Clipper Logistics.
Between the not-so-good news in the UK and the better news has been the possible acquisition of UK contract logistics player Wincanton. GXO’s leadership has been caught off guard by the slow approval process of the UK Competition and Markets Authority (CMA). Wilson said that the CMA is expected to report in the week commencing 17th February, adding, “We still firmly believe there will be a favourable outcome.”
Winning verticals
The three best performing vertical sectors in the year were Omnichannel Retail (30.7% y-o-y revenue growth in the full year and 41.3% in the quarter), Industrial and Manufacturing (24.2% in the full year and 37.6% in the quarter) and Consumer Packaged Goods (22.6% y-o-y revenue growth in the full year). At the other end of the spectrum, Food & Beverage growth was flat in the full year at $1,331m.
Potential acquisition Wincanton would put a rocket under the Industrial and Manufacturing vertical with its 60 years of relations with the UK and European defence and aerospace industries, Wilson continuing that “GXO plans to accelerate growth” within the vertical as part of the acquisition.
Land and expand strategy and new territories
One core approach of GXO’s organic growth strategy has been the so-called ‘land and expand’ strategy. Wilson said that this approach enabled it to move into more than 40 new territories due to legacy customers choosing GXO to support them including Boeing, Michelin and Nespresso.
Germany has proven the fastest single revenue growth geography, outstripping the UK with 60% y-o-y growth in 2024. Land and expand seems to be the nature of the growth strategy in Germany as GXO deepens its relationship with German coffee brand Cibo and wins new customers in the country.
US steady improvement
Seemingly core to GXO’s organic growth strategy has been the steady growth in volumes in its home country the United States. Of this, Wilson said, “We did very well where it comes to volumes and we expect that to progress going forward.” Compared to the UK or Germany, 5.8% y-o-y revenue growth in the US was positively glacial but it does signal improved consumer confidence. Going forward, Wilson said that much of its US business is intra-country so is unlikely to be affected by any trade wars or tariff hikes in the short term.
Contract logistics – slow and steady wins the day
Compared to other logistics markets, contract logistics has always been a low-margin, slow growth sector. It is also less exposed to political and macroeconomic shocks. There are some questions as to GXO’s ever finer margins, but the leadership said that going forward into the second half of 2025 this should change for the better. As a slow moving, rather ponderous logistics market, they can already see with a lot of certainty what that will be, even as other logistics markets brace themselves for for shorter term threats and risks that are far from clear even from weeks away.
Author: Richard Shrubb
Source: Ti Insight
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