GXO Logistics (GXO -0.06%) just marked two full years as a publicly traded company. The logistics services provider has come a long way since it was spun off from XPO in 2021. The logic behind the spinoff was that it would unlock shareholder value and allow each company to more easily pursue mergers and acquisitions (M&A), allocate capital, and compensate employees as a pure play focused on one industry.
Today, GXO stock is trading nearly flat to where it was when the company first went public. But the logistics powerhouse has made major strides since then, executing its acquisition of Clipper Logistics, a U.K.-based firm that was attractive in part for its expertise in reverse logistics, and growing the business on the top and bottom lines.
The company has delivered organic growth each quarter as it makes progress toward its 2027 targets calling for $17 billion in revenue and $1.6 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Image source: GXO Logistics.
What the latest numbers say
GXO delivered another solid round of results in its second quarter with revenue up 11%, including 3% organic revenue growth, to $2.4 billion, edging out estimates at $2.38 billion.
On the bottom line, adjusted EBITDA rose 8% to $190 million, and adjusted earnings per share (EPS) ticked up from $0.68 to $0.70, topping expectations at $0.61.
The company continued to execute on the same playbook that has made it successful through its first two years as a stand-alone company: winning over multinational companies with a focus on automation and a demonstrated ability to deliver return on investment for its customers.
The companies with which it announced new wins and expansions in the recent quarter include Heineken, PepsiCo, Boeing, and Nike, a wide range of global leaders in their respective industries.
GXO also raised its guidance for the year on the bottom line, calling for adjusted EBITDA of $725 million to $755 million, up from a prior range of $715 million to $745 million, and it bumped up its adjusted EPS forecast up from $2.40-$2.60 to $2.45-$2.65.
Why it could soar in a bull market
GXO is executing well in a challenging macro environment. Seventy percent of its new business in the quarter came from competitors, and it also hit a quarterly record in new business wins at nearly $500 million and grew its sales pipeline to $2.1 billion.
But with organic revenue growth slowing to 3%, it's clear the company is experiencing some macroeconomic headwinds. After all, GXO operates in a cyclical industry and most of its business comes from Europe. Its biggest market is the U.K., which has faced more challenges than the U.S. has, including stickier inflation.
CEO Malcolm Wilson said on the earnings call, "Of course, our consumer-facing business, our e-commerce, our brick-and-mortar omnichannel retail business, that is slower right now, and it's clearly a function of the softer macro that we're seeing across all of our business, every region, every geography."
GXO expects organic revenue growth to accelerate in the second half of the year, calling for full-year organic revenue growth of 6% to 8% as it benefits from easier comparisons.
In its two years as a publicly traded company, GXO has performed well in a mostly challenging economy, but a global economic expansion would have the opposite effect on the company, giving it a steady tailwind that would accelerate its growth.
Additionally, the company continues to explore M&A opportunities. Chief Investment Officer Mark Manduca said in an interview that the company's debt-to-EBITDA ratio would be within investment-grade range by the end of the year, potentially setting the company up for an acquisition.
GXO is already executing on its strategic goals, leveraging demand for automation and outsourcing, and capitalizing on the opportunity in a fragmented market. In a bull market and an economic expansion, GXO's growth could significantly accelerate as its customers see stronger demand as well.
With a growing pipeline of new business and the potential for another acquisition, the stock could easily soar higher in 2024 and beyond.
