If there was any doubt about the wisdom of GXO Logistics' (GXO -0.06%) spin-off from XPO Logistics (XPO -6.22%) last August, GXO's fourth-quarter report put it to rest.
The contract logistics giant breezed past its own guidance and investor estimates in the fourth quarter, executing well during a holiday season when many companies faced challenges with supply chain constraints and labor shortages. Overall revenue jumped 28% to $2.26 billion, well ahead of estimates at $2.05 billion, with organic growth of 19%, an impressive clip for a company operating in a mature industry like transportation and logistics.
Growth in e-commerce kept pace with the strong performance, with 45% growth in e-commerce revenue and a 28% jump in reverse logistics, or processing returns. Those are two core growth markets for the company, and its e-commerce, omnichannel and consumer tech segment now makes up more than half of revenue.
Image source: GXO Logistics.
The strong e-commerce growth is also notable because it comes at a time when many consumer-facing e-commerce companies like Amazon and Shopify are posting disappointing growth as they lap the boom in 2020. Still, the long-term tailwinds in e-commerce should support the company's growth, especially with its advantages in technology and automation, and tools like collaborative robots.
On the bottom line, adjusted EBITDA improved from $146 million to $167 million, and the company posted adjusted earnings per share of $0.73, up from $0.43 in the quarter a year ago and better than estimates at $0.52.
What's next for GXO
As the world's largest contract logistics provider, essentially a third-party warehouse operator, GXO is benefiting from scale and its ability to serve multinational corporations that need a logistics partner that can offer high-tech solutions like automation. In fact, 30% of the company's revenue comes from automated facilities.
The company maintained its revenue growth guidance in 2022, though Chief Investment Officer Mark Manduca pointed out that since 2021 revenue was higher than expected, 2022's revenue guidance was effectively raised as the company expects the same level of growth off of a higher base. The company hiked its adjusted EBITDA guidance modestly for the year from $705 million-$740 million to $707 million-$742 million.
Investors have been anticipating some M&A activity from the company -- former parent XPO had a long history of growing through acquisitions, and the contract logistics market is highly fragmented, creating opportunities for a large player like GXO. When I interviewed Manduca, he said that the company wanted to be "selective about M&A" and that organic growth remained the focus, though he sees acquisitions as "an opportunity."
Why the spin-off worked
XPO Logistics CEO Brad Jacobs had theorized that the former XPO was misunderstood by the market because it had too many different business segments. The business was too complicated and was trading at a "conglomerate discount," below its intrinsic value as he saw it.
Jacobs' theory has proved correct, as GXO shares have gained 48% from their initial price of $58 on GXO's first day of trading in August. As a stand-alone company, GXO has been able to highlight elements of the business like e-commerce growth, reverse logistics, and outsourcing that it couldn't as part of XPO, and its results now stand on their own.
The stock price only rose modestly on the report, up 2.1%, which may reflect the market's disappointment that the company didn't raise revenue growth guidance for 2022. However, GXO's 19% organic growth in the fourth quarter and a backlog of $2.5 billion should reassure investors that the fourth-quarter report won't be an anomaly.
In addition to the company's own execution over the holidays, the tailwinds in e-commerce, outsourcing, and automation will continue to support the stock, and the prospect of M&A is also available as an accelerator.
