Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- XPO Inc (XPO, Financial) reported strong financial results, exceeding expectations with a 6% year-over-year revenue increase to $2 billion and a 37% improvement in adjusted EBITDA to $288 million.
- The company's LTL 2.0 plan is effectively driving growth and profitability, with significant improvements in service metrics such as damage claims ratio and on-time performance.
- XPO Inc (XPO) has successfully expanded its fleet, adding over 12,000 trailers and 4,000 tractors, enhancing operational efficiency and network fluidity.
- The company achieved a 9.8% year-over-year growth in yield, excluding fuel, contributing to a nearly 400 basis points improvement in adjusted operating ratio.
- XPO Inc (XPO) is making strategic investments in new service centers, expanding presence in key markets, and expects these centers to be accretive by 2025.
Negative Points
- Despite strong performance, the overall freight market remains soft, which could impact future growth and volume.
- The company faces increased costs in salaries, wages, and benefits, reflecting a 10.5% rise due to wage and benefit inflation.
- Depreciation expenses have risen by 22% year-over-year due to ongoing investments in the fleet and facilities.
- While new service centers are expected to be accretive by 2025, there is a short-term cost impact associated with their rollout.
- The European market, although improving, still presents challenges with soft macroeconomic conditions affecting overall demand.
Q & A Highlights
Q: So Mario, you said that you are seeing some pretty good pricing momentum, and there's a lot more to come. How much of your order book is repriced already? And kind of what's the potential opportunity there as you kind of go through the year?
A: Mario A. Harik - XPO, Inc. - CEO & Director: Yes. Ravi, Mario. When we look at the overall contract renewals, so we were up in the high single digits in the first quarter. And usually, on average, we renew roughly around 1/4 of our contracts. And that performance for us was driven by all the service improvements that we are delivering for our customers that obviously, we were in a higher price because they don't want to see disruptions in their supply chain. And they also understand we're investing in our network to be able to provide that great service.
Q: Great. That's great detail, and Mario, congrats and way to go. Just the talk about the growth of local sales and what that's meant. It seems like that had outsized growth compared to your national sales in the quarter, and it seems to be accelerating. Maybe talk about the pace that you expect that to continue because that's been an important driver for the pricing that you're talking about.
A: Mario A. Harik - XPO, Inc. - CEO & Director: Thanks, Ken. It is a big part of our strategy to grow local account business because, Ken, these are more sticky relationships we have with those customers. And they are supported with a local relationship with one of our sellers in a local market. So over the last 12 months, we increased the headcount in our local sales force by roughly around 25% over that period of time. And we're seeing great performance. Here, in the first quarter, shipment count was up 10% on a year-on-year basis.
Q: I wanted to dig in to the cost side in a little bit more detail. Obviously, better performance on the OR here in the first quarter. And you mentioned bringing linehaul in in-house, 200 to 400 basis points this year. Where could that go in '25 and beyond? And then, Mario, on the variable cost side, what are the other levers that you and the team are targeting? So as we kind of execute on this initiative, what's the next leg of the cost takeout you see in the model?
A: Ali-Ahmad Faghri - XPO, Inc. - Chief Strategy Officer: Sure. Sure, Daniel. So when you think about linehaul insourcing, obviously, an important strategic initiative for us here in the first quarter, we were at about 18.1% miles that were outsourced to third parties. We improved that by 370 basis points on a year-over-year basis, also improved 150 basis points quarter-over-quarter. And that was at the higher end of our full year target range of improving by 200 to 400 basis points annually.
Q: Congrats on strong results. Were there any costs associated with the new terminals that you opened in Q1? Are there any dragging costs that you expect kind of as we go into the second quarter and the second half of the year as you reopen these terminals?
A: Mario A. Harik - XPO, Inc. - CEO & Director: Thanks, Fadi. I'll start with the Yellow site openings or the acquired site opening. I'll turn it over to Kyle to discuss contract renewals. But when you look at the new service centers we're bringing online, we don't see them as having a meaningful cost headwind for us. We do expect them to be only neutral in this year, and they will become accretive in 2025 and beyond. Now here in the near term in the second quarter, I mean, it's a small impact of cost, probably in the 10- to 20-basis-point range on OR associated with those sites as we first turn them on and then we start getting the efficiency benefits.
Q: Could we touch on Europe? I think Mario, you mentioned it was the best quarter since COVID and seeing some strength in the U.K. and France. What end market specifically? And I guess I'll throw in the question too of, is now an improved time to be considering that disposition?
A: Mario A. Harik - XPO, Inc. - CEO & Director: First, I'll start with the back half of the question. Our long-term plan remains to be a pure-play North American LTL carrier, and selling that business is a strategic priority of ours. But we're going to be patient. We want to make sure that we are maximizing the returns on that business. It is a business that has a lot of scarcity value. In Western Europe, we're either #1, #2 or #3 in LTL, truckload and brokerage. And it's in key Western European geographies, think about U.K., France, Spain, Portugal. So it's not a matter of if, but when.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
