What happened
Shares of XPO Logistics (XPO +0.73%) were surging this week after the less-than-truckload (LTL) transportation specialist named a new chief operating officer, poaching Dave Bates from Old Dominion Freight Line (ODFL 1.09%), the company considered to be the best-in-class operator in LTL.
As of Friday afternoon at 12:41 p.m. ET, the stock was up 31% for the week, according to data from S&P Global Market Intelligence.
Image source: XPO.
So what
It's rare to see a new hire cause such a spike in a stock, one equaling more than $1 billion in additional market value, but in some ways the move makes sense.
XPO has spent the last few years spinning off businesses like GXO Logistics and RXO, its former truck brokerage, in order to refashion itself as a pure-play LTL company. Former CEO Brad Jacobs had argued that the stock was undervalued because it was trading at a "conglomerate discount," meaning the business was too complex for investors to properly evaluate.
As a pure-play LTL operator, XPO can now be easily compared against peers like Old Dominion and Saia.
New COO Dave Bates comes to XPO after spending 27 years with Old Dominion, where he was responsible for day-to-day operations in North America as a senior vice president for the last 12 years. Bates starts in his new role today.
XPO CEO Mario Harik said, "Dave is a high-impact executive with a strong track record of driving excellence in all aspects of LTL operations. We're delighted that he'll be leading our operations in creating ongoing value for our customers and investors."
Bates' hiring follows the appointment of Old Dominion's former CFO, Wes Frye, to its board, showing the company is looking to its rival to fill its bench.
Now what
A simple look at Old Dominion's financial results shows why XPO is eager to refashion itself in the former's mold -- and why investors are rewarding it for the move.
In 2022, Old Dominion reported an operating ratio of 70.6%, a 290-basis-point improvement from the year before, even in a high-inflation environment. In the transportation industry, operating ratio is the inverse of operating margin, meaning the company had an operating margin of 29.4% last year, an excellent result in the trucking industry.
By contrast, XPO reported an adjusted operating ratio excluding real estate transactions of 83.9% last year, which is still strong, but significantly lagging behind Old Dominion.
One hire alone won't change that, but it appears to be a step in the right direction for XPO as it revamps the business following those spin-offs.
