How Did XPO Logistics Perform in 1Q16?

(Continued from Prior Part)

XPO’s logistics segment

In the last article, we went through XPO Logistics’ (UPS) transportation segment. Here, we’ll consider the company’s logistics business. In 1Q16, XPO’s logistics (or supply chain) revenues saw a rise of 795.4% to $1.3 billion from $140.8 million in the corresponding period last year. The increase was mainly due to acquisitions in 2015. However, on a sequential basis, the segment’s revenues have gone down marginally by 1.1%.

The decrease was mainly due to the increased volume in XPO’s European logistics from existing customers and new contract execution in the e-commerce and food & beverage lines. The same was the case with the company’s North American logistics division. It also witnessed higher volumes in e-commerce, technology, and beverage & food clients. Plus, the execution of contracts entered in late 2015 has propelled the supply chain segment’s growth.

XPO’s logistics (or supply chain) business includes high-value-add warehousing, e-commerce fulfillment, factory & aftermarket support, and integrated manufacturing & distribution.

Management outlook

The company expects to add vertical expertise in its supply chain segment and develop a wider customer base. XPO’s new business pipeline for the logistics business in Europe is over 0.5 billion euros. The company believes the 2015 acquisitions will generate growth for the logistics segment. XPO has a pipeline of over $400.0 million in the North American supply chain market, which includes potential clients in the chemicals, healthcare, high-tech, and packaged food space. The company expects the European logistics revenues to grow at 5% to 6% in 2016.

Peer group revenue profile

A quick look into XPO’s revenue profile reveals that the company earns 60% of its revenues in the United States. The remaining 40% comes from international operations, mainly the UK and France. On the other hand, its competitor ArcBest (ARCB) earns almost 100% of its revenues in the US. Dominant LTL (less-than-truckload) carrier Old Dominion Freight Line (ODFL) earns more than 95% of its revenues in the US and less than 5% of its revenues through international operations. Another major LTL freight operator, SAIA (SAIA), earns almost its entire revenues in the US. YRC Worldwide (YRCW) earns the majority of its revenues from US operations while a small fraction comes from its Canadian, Mexican, and Chinese operations.

Investors who want exposure to transportation and logistics stocks can invest in the Industrial Select Sector SPDR ETF (XLI). This ETF invests 7.9% in major US railroads (NSC) and 11.8% in airlines (DAL).