Shares of XPO Logistics (XPO 3.28%) surged 12.6% on Tuesday before falling back somewhat following the transport giant's earnings release. The results fell short of expectations, but the markets were more focused on the company's ample liquidity and ability to weather the current downturn.
After markets closed Monday, XPO reported first-quarter earnings of $0.47 per share on revenue of $3.86 billion, falling short of the consensus estimate for $0.51 per share on revenue of $3.98 billion. Adjusted EBITDA was down 2.9% year over year to $333 million, while revenue was down 6.2% from the first quarter of 2019.
The results were largely in line with what XPO had previewed last month, and investors went into the announcement fully aware that the COVID-19 pandemic was taking a toll on transportation and shipping stocks.
In a statement, CEO Bradley Jacobs said: "Our results were tracking well until mid-March, when COVID-19 reached pandemic proportions. At that point, our end markets rapidly deteriorated."
Free cash flow is typically light in the first quarter, but XPO generated $95 million in free cash flow in the quarter, compared with a $96 million free cash outflow a year prior.
Shares of XPO lost nearly half their value over a three-week period in March on growing concerns about the extent of the downturn and XPO's ability to handle it. The stock has since recovered much of that decline, and the post-earnings commentary should help ease fears about XPO's viability.
The company said it has $2.5 billion worth of liquidity and what Jacobs called "an ironclad business model," noting that "even against the current backdrop we are on track to generate hundreds of millions of dollars of free cash flow this year."
XPO has a lot of flexibility when it comes to capital expenditures, since much of what it had planned to spend in 2020 was designed to support growth initiatives. The company also has no significant debt maturities before June 2022.
Shares have recovered much of what they lost in March, but the stock is still down 14% year to date. It might be difficult for the stock to really hit the fast lane during a recession, but for long-term holders, it's not too late to buy into XPO.