XPO’s Q2 earnings beat expectations behind strong LTL performance

XPO blew past analysts’ expectations for the second quarter. A better freight mix and numerous AI-fueled efficiency initiatives produced record operating results in its less-than-truckload unit. The Greenwich, Connecticut-based company said the industry is still in the “early innings” of a multiyear double-digit rate growth cycle.

XPO expects to capture rate increases that outpace competitors by two to three percentage points given the investments it has made to its service offering. It’s also adding more freight from SMBs and shipments that incur accessorial charges, further driving the outperformance. XPO (NYSE: XPO) reported second-quarter adjusted earnings per share of $1.

70, which was 23 cents ahead of the consensus estimate and 65 cents higher year over year. The adjusted EPS number excluded transaction and restructuring costs among other items. It included a 6-cent tailwind from gains on real estate sales. Consolidated revenue of $2. 36 billion was 13% higher y/y and $85 million better than expectations. window.

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pubads(). collapseEmptyDivs(); googletag. enableServices(); }); googletag. cmd. push(function() {googletag. display('div-gpt-ad-1709668545404-0'); }); Less-than-truckload revenue increased 15% y/y to $1. 43 billion. Revenue was 5% higher excluding fuel surcharges. (Diesel prices were roughly 50% higher y/y in the quarter.)

Tonnage increased 1% y/y with yield up 14% (4% higher excluding fuel surcharges). A 3% increase in daily shipments and a 2% decline in weight per shipment formed the tonnage increase. A 1% increase in length of haul along with the lighter shipment weights were tailwinds to the yield calculation (revenue per hundredweight) in the quarter.

Tonnage trends improved throughout the quarter as it is seeing “a lot of positivity from customers.” On a y/y comparison, tonnage was down 1. 5% in April, up 0. 5% in May and 4% higher in June. July tonnage is up more than 6%. Daily tonnage was up 4. 5% from the first quarter.

Better-than-normal seasonality is expected to drive volumes up by a mid-single-digit percentage y/y in the third quarter. XPO has been taking market share among local accounts (SMBs), which typically have lighter shipments but produce better margins.

Both yield and revenue per shipment (excluding fuel) improved y/y and sequentially, which was in line with management’s guidance. Table: XPO’s key performance indicators The LTL unit recorded a 79. 9% adjusted operating ratio (inverse of operating margin), which was 300 basis points better y/y and 400 bps better than the first quarter.

The result was 100 bps better than management’s guidance. Revenue per shipment outpaced adjusted cost per shipment by nearly 400 bps in the quarter. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag.

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push(function() {googletag. display('div-gpt-ad-1665767553440-0'); }); The carrier normally sees 200 to 250 bps of OR degradation from the second to the third quarter, implying a third-quarter result “north of 82%.” However, better pricing and idiosyncratic initiatives are expected to produce an adjusted OR below 81% in the period.

It raised its full-year margin expectation from 100 to 150 bps of y/y improvement to “at least 200 bps” of improvement. It now sees a path to a longer-term goal for annual ORs in the low-70s, “or better.” It has improved the OR roughly 800 bps through the downturn. XPO’s European transportation segment reported a 10% y/y increase in revenue to $927 million.

Adjusted EBITDA of $48 million was 9% higher y/y. It has added sales associates to grow into select verticals while removing some structural costs. It still plans to sell the unit to make XPO a truly pure-play LTL company. Shares of XPO were off 0. 2% at 12:59 p. m. EDT on Thursday compared to the S&P 500, which was up 1. 3%.

The stock is up 43% year-to-date. Why it matters? XPO is one of a few publicly traded LTL carriers. Its quarterly results provide insight into a subsegment of trucking where few public datasets exist. window. googletag = window. googletag || {cmd: []}; googletag. cmd. push(function() {googletag.

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