Third-quarter earnings at 3PL giant RXO included just two weeks’ worth of finances from the Sept. 15 closing of its acquisition of Coyote Logistics. But RXO’s management likes what it has seen enough so far that it made a significant change in projections of how the acquisition will impact the combined companies.
One group that did not like what it saw in the earnings report: investors. At approximately 3:15 p.m. EST, RXO (NYSE: RXO) stock was down $2.98, to $29.93, a decline of 9.18%. RXO is not in the S&P 500, but if it were, that drop would make it one of the five steepest decliners Thursday.
RXO’s GAAP earnings were a loss of $1.81 per share, with most of that coming from restructuring charges of $218 million related to the Coyote acquisition. That contributed to a net income loss of $243 million, but operating income also was negative at minus $20 million compared to positive $6 million a year ago.
Little negativity, however, came through on the earnings call with analysts. Most questions from analysts were generally optimistic as well (though expressions of congratulations common to most earnings calls when the company in question did well were notably absent.)
Drew Wilkerson, RXO’s CEO, said integration of Coyote into RXO is “ahead of schedule, and we’re already seeing early wins from the combined business.” RXO acquired Coyote from UPS.
As a result, Wilkerson said, RXO is now raising its projections of “cost synergies” from the Coyote acquisition to $40 million from the original estimate of $25 million, with the cost of purchased transportation one of the key drivers of that estimate. The earlier estimate was savings of $25 million.
Improved productivity
Jacob Weisfeld, chief strategy officer at RXO, said productivity, measured as net revenue per employee or per load per day has been up 15% the past 12 months on a rolling basis. “We’ve been running at about mid double digits for the last few quarters here,” he said.
What he called the legacy Coyote business “has been a little behind us from a productivity standpoint.”
Weisfeld said in a post-earnings call interview with FreightWaves that RXO Connect was more recent technology than Bazooka, the name of Coyote’s platform. But he said Bazooka still has functionality that can now be transferred on to the RXO Connect platform.
Wilkerson said on the call that moving Coyote on to RXO Connect should help bring Coyote productivity up to RXO’s level, “but then we’ll be going ahead and advancing the ball even further. I think there’s significant opportunity for incremental productivity improvements.”
“Integration is moving so quickly that we’re going to have all of that, or substantially all of that, done within the first 12 months,” said Jared Weisfeld, RXO’s chief strategy officer.
Still laboring under the weak freight market
Even in the midst of an earnings call that was mostly positive, the reality of the current freight market was never too far away. Gross profit per load in the legacy RXO truckload business has been on a lengthy downward trajectory.
Brokerage revenue per load was down 3% in the quarter year on year. But RXO said when adjustments for such extraneous factors as fuel are considered, that number was flat. Not counting for such factors, revenue per load has been down for nine consecutive quarters.
RXO has frequently touted that by its internal metrics and data, it is taking market share from other brokers or carriers. Weisfeld said that between 2013 and 2021, when RXO was part of XPO Logistics (NYSE: XPO) before a 2021 spinoff, “we were growing three times faster than what the brokerage industry was growing.” Both 2022 and 2023 “were phenomenal growth years for us.”
But Wilkerson added that coming into 2024, rather than just chase volume growth, “we were very transparent and put out there that we had a different bid strategy. We wanted to put ourselves in a position to make sure we could honor the contractual rates that we put in without customers.”
But as a result of its strategy, according to Wilkerson, “our position with customers is stronger than what it’s ever been.” As a result, “I’m confident we will continue to outperform the market from a volume growth perspective.”
RXO hasn’t gotten much lift from the current market, “and there haven’t been a lot of spot loads,” the CEO said. “Spots are certainly not abundant, but whenever they are there, we’re picking up more than our fair share.”
Good quarter for special projects
Several references were made on the call to “special projects” that RXO management believes it was able to secure in part because of the combination of RXO and Coyote capabilities. In the post-earnings call, Weisfeld said the category of special projects “could range anything from hurricane relief to a customer needing capacity in a very quick time based on changing demand they saw from their own customers.”
Wilkerson said some of them related to work arising from cleanup efforts after hurricanes Helene and Milton. “But there were also some special retail projects that were out there for a couple of weeks that we were the customer’s choice of being able to call and build on those,” he said.
Weisfeld also said because Coyote’s available capacity is “much larger in the medium to large fleet size,” that can be brought into play in the future on servicing special projects.
Another aspect of the combination of RXO and Coyote that helped contribute to the more advanced prediction of success is what Wilkerson described as “opportunities for growth and cross-selling that neither RXO nor Coyote would have seen as a stand-alone company.”
He said since the closing in mid-September, RXO has seen more than 200 “distinct” cross-selling opportunities where Coyote has offered RXO’s additional services and solutions.
While all of Coyote has been folded into RXO’s brokerage segment, RXO also has a segment it calls Complementary Services. Such activities as freight forwarding and last mile – which saw an 11% year-on-year growth in stops – can now be offered to customers accessing the services of legacy Coyote.
In other highlights from the earnings report and the call with analysts:
Weisfeld provided an overview of brokerage data without specific numbers. Less-than-truckload was 20% of brokerage volume in the quarter, which was flat sequentially but 300 basis points higher year over year. Truckload brokerage volume at legacy RXO was down 9% year over year, “consistent with our expectations of being down high single digits to low double digits.” But volumes in full truckload brokerage were up every month during the quarter.
While the LTL business of legacy RXO saw a small drop in volume sequentially, it was up 13% year on year. The LTL business at legacy RXO also saw its gross profit per load rise, according to a chart released by RXO; specific numbers were not disclosed. But there’s growth to come: Wilkerson said LTL volume at RXO has more than doubled as a result of the Coyote acquisition.
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