Shares of XPO Logistics (XPO 6.55%) fell more than 11% on Friday morning after the transportation company reported second-quarter earnings. XPO did report a loss in what was a noisy quarter due to the COVID-19 pandemic and a number of one-time items, but the sell-off appears to be an overreaction to what seems to have been a decent quarter.
After markets closed Thursday XPO reported a second-quarter loss of $0.63 per share on revenue of $3.5 billion, beating analyst expectations for a $0.73 per share loss on revenue of $3.38 billion. The company reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $172 million, ahead of the $166 million estimate.
Investors went into earnings season expecting transport companies to report issues due to the pandemic, which has disrupted economic activity. But XPO shares on Friday could be under pressure in part because United Parcel Service and other transport companies have surprised Wall Street with unexpectedly strong reports, setting expectations sky-high for the sector.
In a statement, CEO Bradley Jacobs said, "the ramifications of COVID-19 dominated the second quarter," but he painted an optimistic picture about the second half of 2020.
"We've seen a recovery take hold in Europe and start in North America," he said. "E-commerce continues to be our strongest tailwind, benefiting contract logistics and last mile. Our last mile network in North America generated year-over-year revenue growth of 3% in the quarter, with a net revenue margin of 37%."
XPO ranks as North America's largest provider of last-mile delivery services for heavy goods including appliances.
Clearly, XPO is feeling the impact of the current market conditions. While the adjusted EBITDA number beat expectations, it was down 62% year over year. And less-than-truckload shipping revenue declined 20%.
But after withdrawing full-year guidance in April due to pandemic-related uncertainties, XPO has enough clarity now to estimate it will produce "at least" $350 million in adjusted EBITDA in the third quarter. The company also has about $2.8 billion in liquidity to help it through any future pandemic-related speedbumps.
I said in June that XPO is one of the more attractive stocks in the transportation sector. Wall Street was not a fan of the company's second-quarter results, but the earnings report does nothing to alter my optimism about XPO's long-term prospects.