GREENWICH, Conn. - XPO Logistics, Inc. announced financial results for the second quarter 2019. Second quarter revenue was $4.24 billion, compared with $4.36 billion for the same period in 2018. Net income attributable to common shareholders was $122 million for the quarter, compared with $138 million for the same period in 2018. Operating income was $258 million for the quarter, compared with $228 million for the same period in 2018. Diluted earnings per share was $1.19 for the quarter, compared with $1.03 for the same period in 2018. 

Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $132 million for the second quarter 2019, compared with $132 million for the same period in 2018. Adjusted diluted earnings per share, a non-GAAP financial measure, was $1.28 for the quarter, compared with $0.98 for the same period in 2018.

Adjusted net income attributable to common shareholders and adjusted diluted earnings per share for the second quarter 2019 exclude: $7 million, or $6 million after-tax, of non-cash unrealized losses on foreign currency contracts; $4 million, or $3 million after-tax, of restructuring costs, primarily severance; and $1 million, or $1 million after-tax, of transaction, integration and rebranding costs.

Adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), a non-GAAP financial measure, increased to $455 million for the second quarter 2019, compared with $437 million for the same period in 2018. Adjusted EBITDA for the second quarter 2019 excludes: $4 million of restructuring costs, primarily severance; and $1 million of transaction, integration and rebranding costs.

For the second quarter 2019, the company generated $260 million of cash flow from operations and $246 million of free cash flow, a non-GAAP financial measure. Reconciliations of non-GAAP financial measures used in this release are provided in the attached financial tables.  

Updates 2019 Financial Targets

The company has updated its full-year 2019 financial targets for revenue, adjusted EBITDA, free cash flow, effective tax rate and cash taxes as follows:

  • Revenue growth of (1%) to 1% year-over-year, from 3% to 5% previously; which translates to organic revenue growth, a non-GAAP financial measure, of 2.5% to 4.5%, from 5.5% to 7.5% previously. The update to revenue growth reflects the expected impact of lower truckload rates in freight brokerage and unfavorable foreign currency exchange;
  • Adjusted EBITDA in the range of $1.675 billion to $1.725 billion, or year-over-year growth of 7% to 10%, up from the prior range of $1.650 billion to $1.725 billion, or growth of 6% to 10%; 
  • Free cash flow in the range of $575 million to $675 million, up from the prior range of $525 million to $625 million;
  • Net capital expenditures in the range of $400 million to $450 million, unchanged;
  • Depreciation and amortization in the range of $765 million to $785 million, unchanged;
  • Effective tax rate in the range of 25% to 28%, from 26% to 29% previously; and
  • Cash taxes in the range of $130 million to $150 million, from $165 million to $190 million previously.

The company’s 2019 targets for free cash flow and cash taxes assume cash interest expense of $275 million to $290 million, down from the prior range of $275 million to $315 million. The company continues to expect an incremental benefit to free cash flow of $125 million to $150 million from trade receivables programs in 2019.

CEO Comments

Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “We beat on EPS, adjusted EBITDA and free cash flow in the second quarter, offsetting a softer operating environment with cost discipline and margin gains. In North American freight brokerage, we improved net revenue margin to 20.4%, up 360 basis points from last year’s second quarter. In North American less-than-truckload, we improved yield by 3.9% and realized a record adjusted operating ratio of 80.3%.

“We’re implementing innovations in North American LTL to drive the next leg of profit improvement. Our workforce productivity tools are returning positive results in 18 pilot service centers ahead of the national roll-out to all 290 LTL centers this year. In addition, we’re developing an entire suite of proprietary tools that utilize machine learning for dynamic pricing, route optimization of pickup and delivery, linehaul efficiency and yard management. We’re on track to deliver at least $1 billion of EBITDA in LTL in 2021.” 

Jacobs continued, “Our updated guidance provides more visibility into our outlook on 2019. We’ve increased our free cash flow range by $50 million, and raised the low end of adjusted EBITDA by $25 million, while expecting revenue to remain flat.”

Second Quarter 2019 Results by Segment

Transportation: The company's transportation segment generated revenue of $2.75 billion for the second quarter 2019, compared with $2.89 billion for the same period in 2018. Segment revenue primarily reflects a reduction in freight brokerage and direct postal injection business from the company’s largest customer, unfavorable foreign currency exchange and lower truckload rates in freight brokerage, offset in part by growth in North American less-than-truckload (LTL) and managed transportation.

Operating income for the transportation segment was $243 million for the second quarter 2019, compared with $205 million for the same period in 2018. Adjusted EBITDA for the segment was $362 million for the quarter, compared with $335 million for the same period in 2018.

In North American LTL, yield improved by 3.9% year-over-year for the second quarter 2019, excluding fuel, compared with 3% improvement for the first quarter 2019. The second quarter operating ratio for LTL was 81.8% and the adjusted operating ratio, a non-GAAP financial measure, was 80.3%, a 400 basis point improvement year-over-year. This is the best LTL adjusted operating ratio for any quarter in the company’s history.

Logistics: The company's logistics segment generated revenue of $1.53 billion for the second quarter 2019, a 1.2% increase from the same period in 2018. Organic revenue growth was 4.8%. Segment revenue growth was led by food and beverage, consumer packaged goods, aerospace and healthcare in North America and by e-commerce in Europe, largely offset by unfavorable foreign currency exchange and a reduction in business from the company’s largest customer.

Operating income was $61 million for the second quarter 2019, compared with $67 million for the same period in 2018. The change in operating income primarily reflects higher depreciation expense related to prior capital investments in new business wins, a reduction in business from the company’s largest customer and unfavorable foreign currency exchange. Adjusted EBITDA for the segment was $136 million for the quarter, a 1.5% increase from the same period in 2018. The increase in adjusted EBITDA primarily reflects growth from existing customers and from new business startups in recent quarters, offset in part by a reduction in business from the company’s largest customer and unfavorable foreign currency exchange.

Corporate: Corporate SG&A expense was $46 million for the second quarter 2019, compared with $44 million for the same period in 2018.

Six Months 2019 Financial Results

For the six months ended June 30, 2019, the company reported total revenue of $8.36 billion, compared with $8.56 billion for the same period in 2018. Net income attributable to common shareholders was $165 million, compared with $205 million for the same period in 2018. Operating income for the first six months of 2019 was $390 million, compared with $369 million for the same period in 2018. Earnings per diluted share was $1.51, compared with $1.53 for the same period in 2018.

Adjusted net income attributable to common shareholders was $191 million for the first six months of 2019, compared with $213 million for the same period in 2018. Adjusted earnings per diluted share was $1.74 for the first six months of 2019, compared with $1.59 for the same period in 2018. Adjusted net income attributable to common shareholders and adjusted earnings per diluted share for the first six months of 2019 exclude: $17 million, or $12 million after-tax, of restructuring costs, primarily severance; $9 million, or $7 million after-tax, of non-cash unrealized losses on foreign currency contracts; a non-cash charge of $6 million, or $4 million after-tax, related to the impairment of customer relationship intangibles; $5 million, or $4 million after-tax, of debt extinguishment costs; and $2 million, or $2 million after-tax, of transaction, integration and rebranding costs.

Adjusted EBITDA for the first six months of 2019 increased to $798 million, compared with $767 million for the same period in 2018. Adjusted EBITDA for the first six months of 2019 excludes: $17 million of restructuring costs, primarily severance; and $2 million of transaction, integration and rebranding costs.