- XPO officials said in their quarterly earnings release they expected the COVID-19 pandemic to roil markets in Europe and North America, but the company did better than expected during Q2 in terms of revenue and EBITDA.
- As the pandemic caused disruption in April, XPO focused on collecting receivables, turning them into cash sooner and staying disciplined on payment terms, according to CFO David Wyshner. The boom in e-commerce boosted the company during the pandemic. Revenue from XPO's Last Mile segment jumped 3% year over year.
- Daily LTL tonnage fell 19% YoY, but CEO Bradley Jacobs said there were bright spots in the LTL business: Q2 load factor was up 3.9% and was the highest load factor the company had in eight years. Empty miles improved 24% year over year. But revenue for the quarter was down 17.4% to $3.5 billion year over year, and the company reported a net loss of $131 million, compared to positive earnings of $135 million in Q2 2019.
Jacobs said XPO is "encouraged but cautious" about the economy, noting that COVID-19 could be plateauing as therapeutics appear to be working and as a vaccine is "right around the corner."
"Every month has been better than the previous month," said Jacobs. "And little by little, business has been trending back towards normal ... Longer term, I am a mega bull."
Yield trends were positive every month, but that was not enough to erase the hit LTL tonnage took at the beginning of Q2. April tonnage was down 24% YoY, and down 21% in May.
"It was down only 13% in June, and here in July, it's down single digits," Jacobs told analysts. "There's a decent trend there." Jacobs expects the operating ratio in Q3 and LTL to be "substantially better" than it was in Q2.
XPO Chief Strategy Officer Matthew Fassler attributed the LTL tonnage declines to weak activity in the industrial manufacturing and automotive sectors. "While we did well in consumer staples, this vertical was not enough to offset the shutdown in the industrial economy," he said on the call.
An analyst on the earnings call described XPO's LTL performance as "very weak relative to competitors," to which Jacobs responded XPO's long-term strategy has been to prioritize yield over market share and be "highly selective on the freight we take on." That strategy "worked very well for us over the years. This particular quarter, it didn't," Jacobs said.
Last mile, however, was a "real highlight for us in the quarter," Fassler said, with strong consumer demand for shipments of home improvement goods and exercise equipment.
The pandemic also hindered XPO's 2020 plans. The company began the year with Jacobs talking of spinning off major parts of the company to focus on LTL business. Jacobs later called off his strategic plan because of the pandemic.
XPO's capital expenditure plan for 2020 has also been nixed, now set at between $450 million and $475 million, down about 26% from the pre-pandemic plan, according to Wyshner. With asset sales, that will be reduced to a net capex plan of between $250 million to $300 million. Wyshner said the company's cash position was strong at the end of the quarter. XPO has $2.3 billion of cash and cash equivalents and $500 million of available borrowing capacity. It has some debt obligations maturing in mid-2022.