Advertisement
UK markets closed
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • CRUDE OIL

    83.06
    +1.71 (+2.10%)
     
  • GOLD FUTURES

    2,240.60
    +27.90 (+1.26%)
     
  • DOW

    39,807.37
    +47.29 (+0.12%)
     
  • Bitcoin GBP

    56,014.25
    +1,462.30 (+2.68%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • NASDAQ Composite

    16,379.46
    -20.06 (-0.12%)
     
  • UK FTSE All Share

    4,338.05
    +12.12 (+0.28%)
     

U.S. economy ‘chugging along but not roaring fast,’ XPO Logistics CEO says

XPO Logistics CEO Brad Jacobs joins Yahoo Finance Live to discuss earnings, inflation, supply chain disruptions, hiring challenges, and the overall economic outlook.

Video transcript

AKIKO FUJITA: Welcome back to Yahoo Finance Live. We are watching shares of XPO Logistics, currently up about 4/10 of a percent, although it did hit a 52-week low today in the session after the freight transportation company posted record revenue and raised its guidance. Investors still watching the expected spinoff of its truck brokerage platform as it moves to a less than truckload model.

Let's bring in Brad Jacobs, XPO Logistics CEO. We've also got our very own Brian Sozzi here with me at the desk. Brad, good to talk to you today. Record revenue for the quarter certainly a positive, but as we said, this is a company that is still very much in transition. How do you think investors should be looking at the numbers today, given some of the noise that could happen from the spinoffs?

ADVERTISEMENT

BRAD JACOBS: Well, first of all, good morning. Pleasure to see you. So I think on the first quarter, it's really two words, is beat and it's highest. We had beats on revenue. We had beats on EBITDA. We beat on EPS, we beat on free cash flow. And we had the highest revenue at $3 and 1/2 billion that we've ever had in a quarter. We had the highest first quarter EBITDA at $321 million. We had the highest first quarter EPS at $1.25 a share.

And we deleveraged the company. We improved the balance sheet from 2.7 times levered to 2.0 times levered, and that trend will continue, of course, the year. Now, we also raised guidance based on the strong first quarter. And we raised guidance more than the beat of the first quarter. So if you look at the new EPS guidance, it shows 26% year over year growth for the year.

AKIKO FUJITA: You are right in the thick of the supply chain. So let's talk more about the trends that you're seeing in the sector. We've heard from so many companies talking about higher costs, from higher gas prices, higher diesel prices, higher freight costs. What are you seeing?

BRAD JACOBS: Those are all true. We're in an inflationary environment, and costs in general going up, and some of them going up a lot. The good news about our LTL business, which is the majority of our business, is, we're passing along more than our inflationary costs. And we're doing that primarily through pricing through yield. In the first quarter, our yield was up 9% on a year over year basis. And here, in the second quarter, that's accelerated to double digits.

If you look at the top line in our LTL business, we were up 15% on a year over year basis. And stepping back for a second, our LTL business in the first six or so years that we got into that industry, we grew the business on the bottom line and through cash flow. And we generated over $3 billion of net cash over that six-year period. But our goal was not to grow the top line. Our goal was to improve the productivity of the assets.

Now we're continuing to grow the margin, like we did previously. We're still focused on that. But we're also investing in tractors and trailers and opening door capacity at our terminals and increasing the number of drivers that come through our schools. So we're going to be growing the top line over the next few years, in addition to expanding the margins. So I think the next six years are going to be more exciting and create even more value than the first six years.

BRIAN SOZZI: Brad, when you analyze tonnage trends, when you looked at them in April and now into May, is there any indication we are looking for another challenging economic growth quarter here for the country?

BRAD JACOBS: Well, tonnage is down here in April, last month, low to single-- low to mid-single digits. So it's not up. So we can't say the economy is, like, super strong and roaring real fast, and we're turning down freight left and right. Having said that, because the pricing power we're getting, our revenue per day was up in April over the first quarter. So the business model is working well. But to answer your question about how to extrapolate to the economy as a whole, I would say the economy is chugging along, but not roaring fast.

BRIAN SOZZI: Is it becoming any easier for you and the XPO team to find the workers you need to meet the demand you are, in fact, seeing?

BRAD JACOBS: Yes and no. It's nowhere near as hard as it was even a few months ago. The number of our job applications is up 38% than it was a few months ago. So it's up a lot. But it's still-- I don't want to give you the wrong impression. It's still tough to get workers. It's a tough-- job participation is low. A lot of people left the workforce. And they're not coming back. But many people have. It's gotten a little less bad. I'd frame it that way.

AKIKO FUJITA: Brad, you mentioned when the spinoff is complete. I mean, this is a company that becomes largely an LTL play. Can you speak to some of the investments that you think are really necessary to build out the network? And how do you compete with upstarts like Uber Freight, who offer a little more flexibility?

BRAD JACOBS: So Uber Freight is more on the truck brokerage side. On LTL, it's a very interesting industry because there hasn't been any new players of size get into the industry for decades. And the reason that it has this barrier to entry in the business, the reason why there's a moat around this industry, is that it's a complex network-based business.

You need hundreds of service centers. You need a pickup and delivery organization. You need a line haul organization. You need technology, safety organizations, so many, so many components that would require billions of dollars to build up that infrastructure in order to have a competitive LTL carrier.

So there's not a lot of capacity coming in. Actually, in fact, if you look at the last decade, capacity in LTL has decreased. There's been-- there are fewer terminals and fewer doors at those terminals now than there were 10 years ago.

BRIAN SOZZI: Brad, you've been so focused on just getting the stock price moving in the right direction, a lot of maneuvers. You're just constantly making interesting deals. What do you think about the market's reaction here to your results? As you mentioned, beat on sales, beat on adjusted operating profits, beat on earnings. You theoretically checked a lot of boxes.

BRAD JACOBS: No, you really can't focus on the short-term, Sozz. I mean, what the stock market does now or the next few months, it's really not the point for us. What's the point for us is, are we creating a company-- and we are-- that medium-term and long-term, is going to grow faster on the top line and the bottom line than the industry and the market as a whole? And if that's the case, as we believe it is, then over time, our stock will perform.

Our company as a whole has a 38% return on invested capital. And once we complete some of the strategic divestitures we've been talking about the strategic actions and the spin, the return on capital will be even higher, in the 40s and maybe even in the 50s. So this is a good basic business. And over time, companies that have high return on capital get a fair price. So we're patient on that.

AKIKO FUJITA: Patience. Brad Jacobs, it's good to talk to you today. XPO Logistics CEO and chairman, and our thanks to Brian Sozzi as well.