The boom in e-commerce has focused a lot of attention on logistics, both for businesses managing their supply chains and for retailers delivering products to their end customers. XPO Logistics (NYSE: XPO) knows how many key elements there are to getting logistics right, and often, the aspects that might seem to be the most trivial turn out to be crucial to earn success in the shipping business.
Coming into Wednesday's second-quarter financial report, XPO investors were content to see flat revenue, but they wanted much stronger earnings from the logistics specialist. XPO managed to meet those expectations, and the company cited success in a couple of often-neglected areas of supply chain logistics for its past and future success. Let's take a closer look at XPO Logistics and what its latest results say about the industry and XPO's place in it.
More records for XPO Logistics
XPO Logistics' second-quarter results were solid. Sales were up 2% to $3.76 billion, exceeding projections for a very small decline on the top line. Adjusted net income soared by nearly half to $75 million, and the resulting $0.60 per share in adjusted earnings exactly matched the consensus forecast among those following the stock.
Taking a closer look at XPO's performance, growth came primarily from the logistics segment, as we've seen in previous quarters. The division posted a 5% rise in segment revenue, with strong demand in Europe and North America for contract logistics. In particular, e-commerce and industrial sector growth led XPO forward in North America, while e-commerce and refrigerated cold-chain contracts in the U.K. and the Netherlands were most important for Europe's gains. Operating income climbed by a quarter from year-ago levels, and adjusted pre-tax earnings for the segment were up a more modest 15%.
The transportation business saw more sedate results. Revenue inched lower by less than 1% for the quarter, with the weakness stemming largely from XPO's sale of its North American truckload business. Increases in truck brokerage and last-mile transport paced revenue gains, but unfavorable foreign exchange rates and a decline in global forwarding revenue ate into those increases. Operating income for transportation was up 4%, as higher purchased-transportation costs offset better operating ratios in XPO's internal business.
CEO Brad Jacobs celebrated the company's record results in revenue, net income, and adjusted pre-tax operating earnings. "The most notable growth came in last mile and contract logistics," Jacobs said, which are "two fast-growing parts of the supply chain where we hold leading positions in e-commerce." The CEO also noted that operational improvements have led to faster bottom-line gains than revenue growth.
Can XPO keep up its pace?
XPO thinks it's in great shape to see continued success. As Jacobs explained, "The investments we're making in sales and technology have already yielded a record $1.43 billion of new business through June, which is 62% higher than last year." A $3.3 billion global pipeline should offer plenty of future opportunity given favorable industry conditions going forward.
Based on its strong first half, XPO Logistics boosted its guidance for this year and next. The company now expects $1.365 billion in adjusted pre-tax operating earnings in 2017 and $1.6 billion for 2018, which represent increases of between $15 million and $25 million for the two periods. Cost-cutting initiatives should allow the company to continue reaping savings to support new business that XPO is able to attract.
XPO will also have the ability to pursue a variety of strategic directions. The company just completed an offering of 11 million shares, raising about $665 million. Although some of the shares offered are subject to forward sale agreements rather than having been sold directly through the offering, XPO nevertheless successfully raised capital without hurting its stock price significantly.
XPO investors seemed content with the quarter's results, and the stock climbed just a fraction of a percent in after-hours trading following the announcement. As long as e-commerce keeps booming, XPO Logistics has put itself in position to prosper from it, and the company's expertise has continued to grow as the industry evolves.
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