GXO Logistics (GXO +0.32%) was spun off from XPO more than four years ago as a pure-play contract logistics operator.
Its promise to investors was clear. The company would leverage its large footprint in North America and Europe, with nearly 1,000 high-tech warehouses, and a singular focus on contract logistics to make acquisitions, invest in new technology, and deliver organic growth to generate strong returns for investors.
While the company has succeeded on several of those accounts, including delivering steady growth on the top and bottom lines and making a number of significant acquisitions, the stock has struggled to break out in recent years due to macroeconomic headwinds and possibly inflated expectations when the company went public during the pandemic boom.
Now, GXO looks set to start a new chapter. The company made a big change in August as CEO Malcolm Wilson retired and was replaced by Patrick Kelleher. Kelleher brings 33 years of global supply chain experience, including holding senior roles at DHL Supply Chain, where he was CEO of the North America division.
Where Kelleher sees GXO going
Kelleher inherited a company that has made several significant acquisitions in just four years, including Clipper Logistics, PFSweb, and, most recently, Wincanton, a U.K. logistics company.
GXO completed the Wincanton acquisition last year, but the company has only just begun the integration due to delays in approval for the deal from British regulators. Kelleher said the integration was going smoothly, and the company was on track to realize $60 million in cost synergies.
However, after a flurry of acquisitions since the spinoff, Kelleher sees the company pumping the brakes on mergers and acquisitions, and instead focusing on completing the integration of Wincanton and optimizing the business it has now before looking toward outside sources for growth. His top goal is to drive organic growth, and he also aims to delever the balance sheet, bringing the ratio of net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) down to 2.7.
Kelleher is also focused on refreshing and building out the company's management ranks. Last week, GXO announced the appointment of Michael Jacobs as president of the Americas & Asia Pacific division. Jacobs has more than three decades of experience in supply chain operations for companies like Ferguson Enterprises, Keurig, and Toys R Us.
Additionally, GXO is simplifying its management structure, relieving Chief Revenue Officer Richard Cawston of his duties once a new chief commercial officer is hired. Finally, Kelleher is making a new position in the company, chief operating officer, which he told The Motley Fool will be focused on "making sure we've got the operational capacity for the organic growth aspirations we have," which includes its automation, artificial intelligence (AI), and robotics agenda.
NYSE: GXO
Key Data Points
What it means for GXO
GXO's third-quarter results were in line with estimates as organic revenue grew 4% and overall revenue was up 8% to $3.4 billion. Adjusted EBITDA rose from $223 million to $251 million, with adjusted earnings per share (EPS) at $0.79.
However, the company scored several new business wins and expansions, including with Boeing, BMW, and Unilever, and rolled out a major deployment with the U.K.'s National Health Services. In fact, new business wins jumped 24% to $280 million, a positive sign for future growth, and Kelleher said that despite concerns about the macroeconomic environment, tariffs create an opportunity for supply chain efficiency, which is good for GXO because it drives potential customers to the business. He also said the company's business model offers some resilience against a recession, as well as its geographic diversification and diversification across industry verticals.
The company reaffirmed its full-year guidance, calling for 3.5% to 6.5% organic revenue growth, adjusted EBITDA of $865 million to $885 million, and adjusted EPS of $2.43 to $2.63. Based on that forecast, the stock trades at a forward P/E of 20.
If Kelleher can accelerate the company's revenue growth, the stock should be a winner at that valuation, despite its recent lackluster performance.
