Who Pulled $600 Million in Business Away from XPO Logistics?

XPO Logistics' (XPO -2.78%) shares took a dive after the company announced that its "largest customer" would be pulling back $600 million in business. Many have speculated about the identity of this customer, with many assuming it was Amazon (AMZN -1.64%).

On this segment from The Motley Fool's Industry Focus: Energy podcast, MFAM Funds Portfolio Manager Bill Barker and host Nick Sciple speculate on the identity of XPO's mysterious missing customer, why the customer may have left, and what the loss may mean for the business going forward.

A full transcript follows the video.

This video was recorded on Feb. 28, 2019.

Nick Sciple: Following up on that largest customer, you mentioned it was the postal injection business. For our listeners, postal injection is when a large shipper will have a large number of packages that they have a distribution center. Postal injection is taking those unsorted packages from the distribution center, then taking them to the USPS and then injecting those into the USPS' logistics system. USPS recently increased its postal rates, which may have played a role in this.

There's some speculation about the identity of this customer. Management said on the call this had been a $900 million customer, but has now reduced its spending to become around a $300 million customer. When you talk about losing $600 million in revenue going forward, you think it's probably a very, very large business that XPO is doing business with. There's been some rumors that this company is Amazon. What thoughts do you have on this rumor on who the identity of this customer might be? If it is Amazon, what are your thoughts on the idea of XPO losing this business moving forward?

Bill Barker: I think the speculation that this is Amazon is pretty much on par with the speculation that, in previous filings, Individual 1 might be Donald Trump, for instance. It's not stated, but really, there is no other possibility that can be. [laughs] Amazon has pulled approximately $600 million of their $900 million of annual business. Presumably, the reason they have not pulled the other $300 million is -- well, not presumably. They have long-term contracts. So, where they didn't have long-term contracts, they're out.

Assuming, given the 99% probability that this is Amazon, why'd they do that? Well, they have been staffing up for bringing logistics business in-house. It wasn't a shock that this was going to happen, or would very likely happen someday. The timing was a shock to the company. The postal injection business was pulled right before Christmas. And then, this other deduction in business was done right before the company announced its earnings. Why might Amazon have done this? Speculation includes -- and let's underline that this is speculation -- a fairly high profile hire for XPO, their new COO, had been at Amazon and was a pretty useful guy at Amazon. Maybe this is retribution for that. I can't say anything other than, that's speculation. If that's the case, then you don't look at this as having failed to serve a big and important customer in the right way as much as having put the business at some risk that Amazon might do this by hiring away somebody, and having now seen that risk come up into reality. I don't know that I would excuse XPO for the consequences of the action if it was predictable.

Sciple: Right. It's worth saying, this is concerning news. Amazon was a large customer for XPO. But XPO does have a large, large number of other customers. This individual customer, whoever it was, I believe management said was around 5% of total revenue. A large chunk, but now a double-digit amount of revenue that would be impacted over time.

Check out the latest earnings call transcript for XPO Logistics.