Delivery companies have experienced a huge transformation because of one overarching theme in the business world: the rise of e-commerce. With customers insisting on quick delivery of essential items, XPO Logistics (XPO 0.60%) has found its services in high demand, especially as it becomes increasingly necessary to find ways to link producers and their customers all the way from a manufacturing plant to a home or business address.
Coming into Wednesday's third-quarter financial report, XPO investors fully believed that the logistics specialist would continue to see strong growth because of favorable trends in the industry. XPO's results were favorable, including some new records for the company. Let's look more closely at how XPO Logistics did and what's coming down the road for the business.
Image source: XPO Logistics.
XPO Logistics keeps up its momentum
XPO Logistics' third-quarter results showed some gains from recent quarters. Revenue growth accelerated to nearly 5%, with XPO posting $3.89 billion on its top line, beating the consensus forecast among those following the stock by about $100 million. Adjusted net income jumped by 54% to $76.7 million, and that produced $0.59 per share in adjusted earnings, comparing favorably against the $0.57 per share that most investors were expecting to see.
All of XPO's business contributed to the company's success in different ways. For the transportation segment, revenue inched higher by about 2%, although growth from continuing operations was higher because of the company's October 2016 divestiture of its truckload unit. XPO cited strength in North American freight brokerage, less-than-truckload, and last mile, as well as European less-than-truckload business. Operating income for the unit climbed by almost a sixth from the third quarter of 2016.
In logistics, revenue gains were more extensive, with segment sales climbing 8%. Strong demand for contract logistics globally helped lead the charge for the unit, especially from e-commerce. Declines in managed transportation revenue offset some of the sales growth in other areas. XPO's gains in operating income were muted within the segment, rising less than 3%.
CEO Brad Jacobs was happy with how XPO did. "In the third quarter," Jacobs said, "we generated the highest revenue, net income, and cash flow of any quarter in our history." The CEO pointed to positive market dynamics, growth in the intermodal business, and the benefits of a diversified portfolio of services for the company's overall success.
What's next for XPO?
XPO is excited about its future. In Jacobs' words, "We're executing major initiatives around pricing, utilization, and sales productivity to capitalize on the large opportunities at hand." In particular, organic growth has come from a strong sales force and a reputation for good work, and XPO is also looking for acquisitions that could help streamline its strategic efforts.
XPO largely reaffirmed its past guidance in its conference call discussing its results. The company still sees $1.365 billion in adjusted pre-tax operating earnings in 2017 and $1.6 billion for 2018. That's particularly impressive when you consider that the company saw some negative impacts from hurricanes that hit during the period, and XPO said that it expects to see at least some minor lingering effects from the storms in the fourth quarter as well.
For the most part, XPO seems to be happiest focusing on its internal growth opportunities. Jacobs put it simply in characterizing M&A as "the cherry on top" when it comes to its success in the future. With ample liquidity, however, XPO will be able to pounce if it finds the right business to buy.
XPO investors reacted favorably to the latest numbers, and the stock climbed nearly 3% on Thursday following the Wednesday afternoon announcement. With its future tied to the success of e-commerce, XPO Logistics is in a good place right now and could see even better times ahead.
