Late Thursday, XPO Logistics (XPO 1.82%) forecast that first-quarter results would come in below expectations and warned that the COVID-19 pandemic could "materially and adversely affect our business." The company intends to release finalized results on May 4. During the quarter, the company is calling off plans to sell significant parts of its business, and investors are eager to hear more about how it's holding up during the pandemic.

Going into earnings season, investors expected that shipping stocks would be impacted by the pandemic, but the exact hit was unknown. On Thursday, trucking company Old Dominion Freight Line posted results that met expectations, though it saw business deteriorate late in the quarter and get even worse in April.

An XPO truck on a coastal road.

Image source: XPO Logistics.

XPO has significant exposure to Europe due to its 2015 acquisition of Norbert Dentressangle, and for that reason, the company likely felt the impact of COVID-19 ahead of most U.S.-anchored transports. Overall, XPO operates in 30 countries.

Weaker-than-expected results

In a regulatory filing, XPO said it expects to report first-quarter revenue of between $3.855 billion to $3.865 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $330 million to $333 million. That's short of the $343 million in adjusted EBITDA on sales of $4.12 billion that XPO reported in the first quarter of 2019 and below Wall Street's expectation for $344 million in EBITDA on sales of $4.02 billion.


Estimated 1Q 2020

Actual 1Q 2019

Consensus Estimate

Adjusted EBITDA

$330 million to $333 million

$343 million

$344 million


$3.855 billion to $3.865 billion

$4.12 billion

$4.02 billion

Source: XPO securities filing, Yahoo! Finance.

Free cash flow is expected to come in between $85 million and $95 million in the quarter, compared to a cash flow usage of $96 million in the first quarter of 2019. XPO estimates it had about $1.127 billion in cash on the balance sheet as of March 31 and long-term debt of about $5.766 billion.

In a separate filing, the company said it intends to offer $750 million in senior notes due 2025, in part to repay a 6.5% senior note due in 2022 and other debts.

Looking ahead

XPO also withdrew its full-year 2020 guidance. It's difficult to predict how long the pandemic will last or what will become of the economy once it's contained. However, the company is assuming the impact will be significant.

About 77% of its cost basis is variable, and XPO said it's moving aggressively to reduce expenses by cutting the use of contractors and reducing employee hours, as well as through furloughs and layoffs. But expenses are also going up due to efforts to keep the workplace safe and adding pandemic paid sick leave to benefit packages to cover testing and other needs. XPO said it "does not expect to be able to fully mitigate the effects of significantly reduced volumes on its results of operations."

In the worst-case scenario, that could mean real trouble for XPO.

As the company wrote, "While we are not able at this time to estimate the impact of the COVID-19 pandemic, an extended period of global supply chain and economic disruption, as well as an extended global recession, could materially and adversely affect our business, results of operations, financial condition and liquidity."

Should investors head for the exit?

Much of what XPO disclosed should come as no surprise. With large sectors of the global economy shut down, XPO was going to take a hit. Given the way the pandemic has expanded, the second quarter is definitely going to be far worse than the first. There's also no guarantee of a recovery in the second half of 2020 or even in 2021.

Shares of XPO reflect that added risk, down more than 30% since mid-February and 19% year to date. As the company notes, should the post-pandemic recession turn into a sustained depression, XPO could be in serious trouble.

XPO Chart

XPO data by YCharts.

Earlier in the month, CEO Brad Jacobs called himself "a pragmatic bear in the short-term," but said he remains "a mega-bull in the long-term" when it comes to XPO. I tend to believe the worst-case scenario will not materialize for XPO and it has the wherewithal to get through whatever downturn is up ahead. It's even possible XPO's international exposure will help it to recover more quickly than its domestic-focused rivals.

For those who have the patience to ride through the coming downturn, XPO still looks like a best-in-class shipping company that has relationships with about 70% of the Fortune 500 and significant technology advantages. It's going to take a while to play out, but I still believe that over the long term, XPO will deliver for shareholders.