XPO Logistics (NYSE:XPO) shares can't seem to find the floor. After a painful double-digit drop in October, investors hoping for some relief were in for a rude shock as the stock tumbled 15.1% in November, according to data provided by S&P Global Market Intelligence. As if that wasn't enough, XPO shares have already lost another 12% so far in December, now stretching their three-month loss to (hold your breath) a staggering 40%. Can it get any worse?
While volatility in the broader market, especially industrials sector, hit XPO shares hard in October, it was an unexpected news release from the company on Oct. 31 that sent its shares crashing last month.
XPO was to release its third-quarter numbers on the last day of October, and expectations ran high amid strong freight markets. XPO reported on time but shockingly cut its outlook for the full year, spooking the market.
In reality, XPO is growing steadily. In Q3, its revenue climbed 11.5% and adjusted net income came in nearly 58% higher, year over year. The company also bagged new business worth $918 million during the quarter, up 43% year over year. Unfortunately, an after-tax hit of $11.4 million due to a customer bankruptcy in Europe forced management to cut its full-year forecast for adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $1.585 billion from $1.6 billion.
In another news bit, rival FedEx (NYSE:FDX) seemed to take a page out of XPO's playbook and announced the launch of a pilot last-mile delivery program in the middle of November. Much like XPO's approach, FedEx intends to deploy in-house drivers instead of outsourcing the job. Why is this development important? As of now, XPO Logistics is the leader in last-mile; it dominates the critical market of delivering heavy goods such as furniture and home appliances to the customer's door, then assembling and installing. For XPO, FedEx's latest move raises concerns of increased competition in a market it has dominated until now.
There's another possible reason for XPO shares falling: New York-based hedge fund Brenner West Capital Partners, which counted XPO Logistics as its largest holding with 669,119 shares as at the end of the third quarter, is reportedly shutting down. While we don't know whether the fund or in-the-know people are selling off shares, I wouldn't rule out the possibility.
While FedEx's moves to expand in the last-mile delivery market shouldn't be ignored, it'll take some effort for FedEx to reach XPO's scale of operations in the space. Also, last-mile has taken off only in recent years, and an e-commerce boom should mean there's room for growth for every player in the industry.
As things stand now, I believe the sell-off in XPO shares is overdone, especially during the holiday season -- one of the busiest seasons for XPO Logistics.