XPO Logistics Earnings Show Investors Have Multiple Ways to Win

XPO Logistics (XPO 0.66%) is best known for its aggressive acquisition strategy, which has turned this once-regional transportation and logistics company into a global powerhouse. But investors have recently been more focused on rumors that the company might sell off one or more of its business units.

Trading in the stock was halted briefly on Nov. 6, leading investors to believe a divestiture announcement was imminent. Instead, XPO released earnings while the markets were still in session.

Motley Fool contributor Lou Whitman later that day joined Motley Fool Live to break down the quarter and discuss with "The Wrap" host Jason Hall what the future might hold for XPO Logistics. Whether XPO stays together or breaks itself apart, the stock appears headed in the right direction.

Jason Hall: Lou, tell us XPO Logistics, ticker XPO, and that's a stock advisor recommendation from a number of years ago. What in the heck just happened? They weren't supposed to report earnings today, what happened?

Lou Whiteman: XPO was supposed to report earnings today, but they weren't supposed to do it.

Jason Hall: But not when they did.

Lou Whiteman: Until after the markets closed. XPO Logistics, one of my favorite companies, I should say, coming in. It was one of the best performing industrial stocks of the last decade. The stock was halted mid-day today and then jumped 10 percent immediately after, and it appears, as we said, earnings that were due out after market today, someone got hold of them mid-day. First off, the earnings were fantastic, they did 84 cents per share on revenue of 4.22 billion. The analysts were expecting 40 cents per share, so less than half of that on revenue of 3.85 billion. This is a business that has done really well in the pandemic. They have been investing for years to build out their e-commerce logistics and warehousing operation for retailers. The value proposition is, no one retailer can compete with Amazon scale alone, but on a platform with a lot of other retailers, they can reach that scale and offset some of what Amazon has going forward. We saw that play out in the quarter, last mile revenue, delivery to the house was up 15 percent year over year. Supply chain revenue was up five percent, and supply chain EBITDA was up 15 percent. There's a tech angle here too. XPO Connect is an online brokerage that helps match truckers with shippers, and truckers love it because it helps them reduce their empty miles or their non-full trucks. It's up to 70,000 carriers on the platform now. It helped truck brokerage sales grow by 27 percent year over year. But let's be honest, it was not just the earnings that caused that stock spike. For all the love I just gave this company, it trades at a so-called conglomerate discount. It is a lot of different businesses in one, and it's multiples across the board will trail more focused companies like C.H. Robinson in logistics, and J.B. Hunt in trucking. For that reason, there's talk of a breakup. They tried to sell a big portion of portfolio before COVID, they called it off, now they're talking about it again. My guess is investors saw the stock halt, and assumed we were about to hear some big news on that, and we still might down the line.

But my big takeaway here is, this is a company that if it breaks up, I believe this management team is only going to do that if they see real value there if it's a real nice premium. But this is a business that works without a breakup, and this is a stock that I'm really happy to continue holding even if nothing happens. This is a company that was built for the next generation of logistics and post COVID world. I really like what they're doing. I'm really excited to hear tomorrow morning before the market opens, when they actually talk about it. But these earnings are exactly what we would have hoped for.

Jason Hall: Well, it's strange. Because the story for XPO for the better part of the past decade was the management team was building a business, was acquiring disparate pieces of the logistics industry, shipping industry, to try to build something that some of its parts should be worth more, and it's paid off. It's certainly paid off for investors.

Lou Whiteman: Yeah. Thirteen hundred percent return in a 10-year period.

Jason Hall: Here we are, the message the past almost a year now, has been break it up. It's like break up the 27 Yankees here. I do have this murderer's row business that there's these calls at the differences that you have people looking at, my assumption, as you have these calls, because people want that short term pop. Because like you said, that conglomerate discount, because it's a little more complicated so each of the separate businesses stand-alone. When you have a clear line of sight, it's easier to say, well this is worth this, that is worth that. But when you have 10 of them and you put them together, maybe be a little bit less clear.

Lou Whiteman: It's interesting to say that too, because this what this management team does. Brad Jacobs first build a Waste roll up. He built a rentals roll up, and now he's doing this. Yet, this was $100 million sale company, a decade and a half ago. I'm hoping, one day we're going to have them on a podcast and we can argue these in person, but the CEO is ruthlessly dedicated to shareholder value, you may say. A lot of times companies get in trouble if they're too sentimental about the empire they've built. In a way, I want to respect the fact that he's saying "the market says this isn't as valuable as I think it is, so I'm looking at options." But in a way, as a long-term holder, as someone who is looking well past this next quarter, I would be very content and actually prefer if they just keep it together and see if it plays out the way I think it will, and I think the way they think it should. I have mixed feelings about the breakup. But definitely I think Wall Street would love to see it and definitely you're going to see a pop. I think they've got a lot of people's hopes up when those stock was halted today.