Less-than-truckload carrier XPO beat first-quarter expectations Thursday and provided commentary that sent shares higher.
XPO (NYSE: XPO) reported adjusted earnings per share of 56 cents, which was 10 cents higher than the consensus estimate and the first quarter of 2022. The result excluded transaction costs from the spinoff of its brokerage unit RXO (NYSE: RXO) and the decision to retain its European business unit. Restructuring costs in both of its segments were also excluded.
Less-than-truckload revenue increased 1% year over year (y/y) to $1.12 billion as shipments per day grew 1.5% and revenue per shipment was down slightly. Tonnage was down 2% as the increase in shipment counts was more than offset by a 3% decline in weight per shipment.
XPO has seen its freight mix skew toward local freight, where shipments were up 9% y/y. However, the weights of those shipments were lighter in the quarter as broader demand for goods was soft. By comparison, freight in its national network was flat y/y.
Management said total shipments were up sequentially in April, which is better than normal seasonal trends, but the improvement compared to a weaker-than-normal March. Tonnage in April was up 2% from March but down 2% y/y.
The tonnage declines accelerated on a y/y comparison as the quarter progressed; January was up 2.8%, February was down 2% and March was down 5.5%.
XPO’s tonnage normally increases 5% from the first to the second quarter. It is forecasting a low-single-digit increase this year.
“There’s still softness in the environment as we see it,” CEO Mario Harik told analysts on a Thursday call. “For us in April, we’ve seen the trends accelerate; we outpaced typical seasonality … but that feedback again from the customer is mixed at this point.”
The company has broadly been taking market share in recent quarters. The slight dip in first-quarter tonnage compared to a mid-single-digit tonnage decline at Saia (NASDAQ: SAIA) and low-double-digit declines at Old Dominion (NASDAQ: ODFL) and Yellow (NASDAQ: YELL).
Revenue per hundredweight, or yield, was up 1% y/y excluding fuel surcharges.
As XPO has been taking share, its yield growth has been more muted. Other LTL carriers booked low- to mid-single-digit increases in the quarter (excluding fuel), with Old Dominion recording a 9% increase.
Management said yields should again increase y/y by a small percentage in the second quarter. Accessorial charges are expected to push yields higher. Those fees account for a low-double-digit percentage of revenue currently.
XPO said its contract renewals were up 4.5% in the quarter.
Table: XPO’s key performance indicators
The LTL segment posted an 89.6% adjusted operating ratio, which was 70 basis points worse y/y.
As a percentage of revenue, the wages and benefits line was 260 bps higher, mostly due to wage increases. Head count in the quarter was down 1% sequentially. XPO plans to reduce staff by a larger percentage in the second quarter and through the rest of the year, however, the reductions will come through normal attrition. It expects to achieve $50 million in labor cost reductions, two-thirds of which will be in its LTL unit, by the third quarter. All of these cost actions have already been implemented.
Productivity and technology initiatives are expected to bridge the gap between growth in volumes and lower employee counts. Labor hours were down 30 bps y/y in the first quarter while shipments increased 1.5%.
Depreciation and amortization presented a 110-bp headwind given the recent increase in equipment purchases and other capital spending.
During the quarter, the company took delivery of 700 tractors, which lowered its average fleet age from 5.9 years to 5.2 years. The new equipment will begin to lower maintenance expenses in the coming quarters. The carrier’s goal is to lower the fleet age over time to under five years.
Purchased transportation expense was 340 bps lower y/y as XPO has reduced its reliance on third-party capacity for linehaul shipments and pulled forward bid cycles with third-party carriers to take advantage of low market rates. Outsourced miles accounted for 22% of total linehaul miles in the quarter, a 270-bp y/y reduction. The goal is to reduce the number to 12% by 2027, which would be a 50% reduction from the end of 2021.
The LTL OR improved 70 bps sequentially from the fourth quarter. The company normally sees 50 bps of deterioration.
XPO normally records 400 bps of sequential OR improvement in its LTL segment during the second quarter, but given current demand headwinds it expects half that improvement this year. The expected change implies an all-in adjusted OR of 88%.
Adjusted earnings before interest, taxes, depreciation and amortization was $182 million in the LTL unit, a 2% y/y decline.
XPO’s European transportation segment reported $787 million in revenue, flat y/y but up 6% excluding the impact of foreign exchange rates. Adjusted EBITDA was down $1 million, to $37 million.
Shares of XPO were up 6% at 2:32 p.m. Thursday compared to the S&P 500, which was down 0.8%.
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