XPO Logistics (XPO 0.83%) delivered market-beating results in its first quarter since spinning out its logistics operations as an independent company, but the stock sold off over issues in XPO's trucking business.

The issues, a rare mishap for a company with a reputation as a top operator, were significant, and it will likely take a few quarters to resolve.

But for investors willing to take a long-term approach, there was a lot of reason for optimism contained in the report. Here's why XPO is still a solid investment today even after the post-earnings market sell-off.

Trucking hits the brakes

XPO reported third-quarter adjusted earnings of $0.94 per share on sales of $3.27 billion, beating the consensus estimate for $0.93 per share in earnings on revenue of $3.1 billion. But the company's less-than-truckload (LTL) operation, which ships freight from multiple customers in a single load, ran into trouble, posting an operating ratio of 84.4%.

Two XPO trucks at a warehouse facility.

Image source: XPO Logistics.

That operating ratio -- a measure of operating expenses over net sales -- was up 190 basis points year over year, attributed to issues including equipment shortages and labor challenges. XPO's problems stood out in part because many of its LTL rivals, companies including Old Dominion Freight Line (ODFL 0.14%) and Yellow (YELL 1.81%), posted strong results.

XPO CEO Brad Jacobs on a post-earnings call with investors admitted "it obviously was not our finest hour," in terms of LTL results, but said "we have our arms around the issue, and we're dealing with it with great urgency."

XPO detailed a plan to improve its LTL operation in the quarters to come, including freight embargoes, pulling an annual rate increase from January to November to account for higher costs, opening new terminals and expanding capacity in existing ones, and investing to expand its driver pool.

But the adjustments will take time -- only about half of the warehouse expansion is expected in 2022, for example -- and the markets clearly expect the issues to linger into the current quarter if not longer. XPO post-earnings tightened its full-year earnings view to $4.15 to $4.25 per share, which even at the high end is about 15 cents short of consensus expectations.

The quarter wasn't all bad

For all the drama in LTL, it is worth reminding that XPO was able to surpass expectations in terms of earnings per share and revenue. The company's other businesses, and in particular its truck brokerage operation, generated strong results that helped to offset LTL's issues. The brokerage business grew loads by 37% and net revenue was up 60% year over year. XPO's top 20 customers in the brokerage business increased their total volumes by 45%, a sign that the company is taking share.

At least some of that is thanks to the company's investments in technology. Its XPO Connect product, which matches shippers with available transportation, saw cumulative downloads roughly triple year over year to 550,000. Year over year carrier usage of XPO Connect more than doubled, and the company said that 77% of carriers who use the Connect platform use it again over the following 30 days.

The brokerage business, like many parts of the transportation industry, is driven by scale, and XPO Connect's success speaks well of the company's effort to build relationships with its top customers.

Overall, XPO reported strong pricing and indicated it expects that pricing power to continue into the new year. Yields, excluding fuel, rose 6% year over year and price increases on contract renewals were up 8%. The company also paid down about $1.5 billion in debt during the quarter, accelerating its push toward an investment grade debt rating.

There might be further opportunities to decrease leverage up ahead. Jacobs built his reputation in part on M&A, and with demand for trucking assets strong in the current market XPO might look to shop some of its smaller units as a quick way to raise cash.

Tough quarter; still a great company

Summarizing the quarter, Jacobs on the call said, "Even great companies stumble now and then, and we certainly did not stumble companywide." But the stumble in LTL is what caught investors off guard, and it is now up to Jacobs and his management team to show they have their arms around the problem as soon as possible.

XPO has earned a strong reputation as an operator under Jacobs, with the stock up more than 1,400% during a 10-year period leading up to the August spinoff of GXO Logistics (GXO -0.59%). GXO has gotten most of the attention post-split, but XPO still has the potential to be a best-in-class trucking and brokerage operation that can generate pricing power and strong returns thanks to its scale and its investments in technology.

It is understandable the market sold off based on the LTL performance, but investors have done well by sticking with Jacobs and XPO over the long haul. These problems look fixable, and XPO's brokerage business and its European operations are set up well to deliver.

Even after the sell-off, investors would be wise to keep on trucking with XPO.