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GXO Logistics Is Ready for the Holidays

By Jeremy Bowman – Nov 4, 2021 at 8:35AM

Key Points

  • Organic revenue was up 12% in the third quarter, and the company raised its guidance.
  • The supply chain crunch could make GXO more attractive to customers.
  • Technology and global scale are helping the company differentiate itself.

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The contract logistics company has hit the ground running.

GXO Logistics (GXO 4.59%) released its first earnings report as a publicly traded company on Monday, and the contract logistics specialist did not disappoint.

GXO, which separated from XPO Logistics in August, reported 24.6% year-over-year revenue growth in the third quarter to $1.97 billion, ahead of analyst estimates at $1.82 billion. Some of that growth came from the acquisition of Kuehne + Nagel's business in the U.K. and Ireland, and the U.K. became its biggest geographic segment in the quarter with $680 million. Organic revenue, which excludes acquisitions and foreign exchanges, rose 12%, a solid pace in the third-party logistics industry.

A GXO robotic arm in a warehouse with one employee nearby.

Image source: GXO Logistics.

Bottom-line performance was strong as well as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), the company's preferred metric, were up 15% on a pro forma basis to $163 million, and adjusted earnings per share jumped $0.23 to $0.56, which beat estimates at $0.51.

GXO also raised its guidance for the full year by $100 million to $7.6 billion to $7.8 billion, and it hiked its full-year adjusted EBITDA range by $2 million to $607 million to $637 million.

Building momentum

The company continues to expand, growing its business with 60 new warehouses open so far this year and another 15 expected by the end of the year. GXO is benefiting from several secular tailwinds, including a demand for automation, growth in e-commerce, and an increase in outsourcing as more companies look to third-party logistics providers to handle shipping.

GXO has invested significantly in technology over its history as a part of XPO Logistics, and innovations such as collaborative robots and vision technology, including wearable scanners, have made an appreciable difference for the company by attracting new clients and driving growth. About a third of its new outsourced contracts this year have come from winning business from competitors, and revenue from vision tech more than tripled in the quarter, while business from its cobots, or collaborative robots, was up more than 300% in the quarter.

Thirty percent of the company's revenue now comes from automated sites, and automation is playing a role in every new contract the company is signing, according to Chief Investment Officer Mark Manduca. In an interview with The Motley Fool, Manduca said that demand for technology was a top requirement at the negotiating table. He added that GXO's tech capabilities, as well as its strong balance sheet, large scale, and global reach, are what's driving growth and signing new customers like Abercrombie & Fitch, Saks, and Apple. GXO operates in an average of three countries for each of its top 20 customers, showing that its biggest customers count on its global positioning.

Full speed ahead

GXO has become a stand-alone company at a pivotal time in the logistics industry as supply chain crunches and labor shortages are impacting industries from semiconductors to apparel. However, management continues to see strong growth into 2022, forecasting 8% to 12% organic revenue growth next year with new customer wins this year contributing $700 million in incremental revenue. It also expects $705 million to $740 million in adjusted EBITDA, or a 16% increase in the midpoint.

While supply chain constraints may be impacting some of GXO's customers, they're also helping the company win new customers. As Manduca sees it, the demand for speed and efficiency places a priority on the direct-to-consumer channel as it can take retailers 2 to 6 weeks longer to get products into retail stores versus shipping it directly to customers through e-commerce. In other words, the growth in e-commerce is a significant tailwind for the company as currently half of its revenue comes from its e-commerce, omnichannel, and consumer technology segment. That segment delivered 22% growth in the third quarter.

The holiday season is typically the busiest time of year for logistics companies like GXO as e-commerce peaks during the month ahead of Christmas, and with the supply chain disruptions, it could be the biggest test yet for the industry. For GXO, it's also an opportunity to demonstrate the power of its technology, and to win new business and expand existing relationships by delivering for its customers. After a strong Q3, the company seems poised to capitalize. "Christmas will happen," Manduca assured.

Jeremy Bowman owns shares of GXO Logistics, Inc. and XPO Logistics. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends XPO Logistics and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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