Growth in the US trucking sector appears to be reasonable if XPO’s latest results are any indicator.
The Connecticut based road freight specialist announced first quarter numbers that saw revenue increase 5.8% to US$2bn and operating income rise 137.9% to US$138m. There was a good deal of variability in the numbers, with EBITDA (Earnings Before Interest Tax and Amortisation) up 37% but with net income leaping by 294.1%.
At the key North American ‘Less-Than-Truckload’ (LTL) business underlying demand was reasonable, if not terribly exciting. Compared to the same period last year, daily shipments were up 4.7% whilst daily tonnage carried increased by 2.6%. This resulted in revenue rising 9% to $1.221bn however operating income jumped by 60% to $138m. The difference in the rate of revenue and profit growth is ascribed to XPO executing its “LTL 2.0 plan” which seems to have focussed on cost control to deliver, in the words of Mario Harik, chief executive officer of XPO, “a 50% increase in adjusted operating income, with a 390-basis-point improvement in adjusted operating ratio to 85.7%. This was underpinned by yield growth, ex-fuel, of 9.8% and an acceleration in revenue per shipment”.
The European transport business seems to be on a different trajectory. Revenue was up 1.3% year-on-year at US797m yet the business saw operating losses increase from $3m to $4m year-on-year. The reasons behind this increase in losses were not elaborated. The market in Spain, France, and Britain is very competitive, however, the underlying demand conditions have not been that bad, with all three economies seeing at least some growth in consumer demand. However, measured in terms of ‘Adjusted EBITDA’ the European business increased 2.7% from $37 in Q1 2023 to $38m in Q1 2024.
The strength of XPO is its focus on ‘Less-Than-Truckload’. The results in North America illustrate that the ability of LTL to grow faster than the underlying market continues to be sustained. However, even with LTL, XPO is having to be resort to re-focussing on cost control projects as well as operational adjustments to the model such as through insourcing important parts of its fleet. In its European business, these factors do seem to be being applied so much. Possibly this is why it is not making so much money.
Author: Thomas Cullen
Source: Ti Insight
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