GXO (GXO) Q2 Revenue Jumps 16%

GXO Logistics (GXO 3.10%), a leading global provider of contract logistics solutions, reported its second-quarter 2025 earnings on August 5, 2025. Headline results included robust GAAP revenue of $3.30 billion, up almost 16% year over year and surpassing analyst estimates by $200 million. Adjusted earnings per share landed at $0.57, also topping expectations, with non-GAAP EPS of $0.57 and GAAP revenue of $3.3 billion both exceeding analyst estimates. Despite GAAP revenue and non-GAAP profits outpacing forecasts, the period included shrinking adjusted EBITDA margin and negative free cash flow, putting operational pressures in the spotlight. Overall, the period showcased strong new business momentum but highlighted persistent cost and cash management challenges.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Recent Focus Areas

GXO Logistics operates as a specialist in contract logistics, helping companies manage distribution, warehousing, and supply chain automation. Its primary business centers on designing and running efficient warehouse operations and serving large customers across industries like retail, technology, and aerospace.

Recently, the company has concentrated on driving technology-led efficiencies, expanding through strategic acquisitions, and managing a broad customer base. Investment in automation and artificial intelligence (AI) platforms drives productivity in its warehouse management operations. Other key success factors include reducing customer concentration risk and extracting cost savings from mergers, such as its acquisition of Wincanton, from which management expects to realize $58 million in annual cost synergies beginning in late 2025.

Quarter Highlights: Revenue, Growth Drivers, and Operational Developments

Revenue (GAAP) increased by 15.9% over the same period last year, exceeding analyst forecasts by $200 million. Of this growth, 6% was organic, representing contracts and business expansion not tied to mergers or currency effects. The remainder came from acquired operations and foreign exchange, reflecting ongoing benefits from acquisitions like Wincanton.

Organic revenue growth reached 5.6% for Q2 2025, the fastest organic revenue growth rate in the last nine quarters, at 6%, reversing a slower trend seen earlier in the year. New wins were pivotal: signed $307 million in new annualized business, up 13% year over year. A sales pipeline of $2.4 billion was noted, up 13% year over year. Growth was also bolstered by a healthy contract mix: 51% of new business stemmed from new activities year-to-date, 23% of contract wins came from companies outsourcing their logistics, and the rest from competitors’ customers changing providers.

However, adjusted EBITDA margin dropped to 6.4% from 6.6% (non-GAAP), and operating return on invested capital reached 45.9%, above the company’s long-term target. Repurchased 2.6 million shares, as part of its ongoing $500 million buyback program.

Free cash flow (non-GAAP) fell to negative $43 million, a substantial decline from positive $31 million in free cash flow (non-GAAP) a year earlier. This shift resulted from elevated capital spending and lower proceeds from asset sales. Operating cash flow was $3 million.

Notably, GAAP net income fell to $28 million from $39 million a year earlier. Leverage remained relatively high, with net debt (non-GAAP) at $2,545 million and a net leverage ratio of 3.0 times trailing twelve-month adjusted EBITDA (non-GAAP), though liquidity at quarter end was $1.208 billion.

Technological innovation continued to figure prominently. Management cited productivity improvements from advanced AI-driven warehouse modules for tasks such as proactive restocking, order management, and robot-assisted inventory tasks. These technologies are beginning to deliver cost savings, though impacts for 2025 are expected to be modest as pilot projects mature.

Integration of Wincanton, a logistics business acquired in April 2024 and focused on the UK and Ireland, remained a key operational focus. This acquisition expanded the company’s reach in markets such as healthcare and aerospace. The Wincanton integration is expected to deliver about $58 million in annual cost synergies beginning in late 2025. Management said no further major acquisitions were planned until leverage from the current deal is reduced.

The customer base remained diversified, with no single client providing more than 6% of revenue and the top five clients capped at less than 20% of total revenue. The business pipeline remains strong, benefiting from the recent award of the National Health Service (NHS) contract in the UK. This long-term agreement strengthens the company’s position in healthcare logistics and is expected to bolster future periods.

Looking Ahead: Guidance and Investor Watch Points

Management raised its FY2025 outlook for adjusted EBITDA, now guiding to a range of $865 million to $885 million, up from $840 million to $860 million previously. Organic revenue growth is expected between 3.5% and 6.5%, and adjusted diluted earnings per share (non-GAAP) should land between $2.43 and $2.63. The company anticipates that adjusted EBITDA to free cash flow conversion will range from 25% to 35%. For Q3 2025, management expects adjusted EBITDA (non-GAAP) to make up 27.5% to 28.5% of full-year adjusted EBITDA.

Management also indicated that, even if U.S. consumer activity softens later in the year, it expects to remain within its full-year guidance. The NHS contract onboarding, along with a healthy sales pipeline, is forecast to support growth in 2026. Investors should monitor margin progression, success of Wincanton integration, the share of organic versus acquisition-driven growth, and improvement in free cash flow conversion.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.