How Did XPO Logistics Perform in 1Q16?

(Continued from Prior Part)

XPO’s transportation revenue in 1Q16

In the last part, we analyzed XPO Logistics’ (XPO) overall revenues. Here, we’ll assess the performance of XPO’s transportation segment. The company’s transportation segment’s gross revenues went up by 308.6% to $2.3 billion from $562.2 million in 1Q15.

XPO’s transportation segment is divided into the North America and Europe segments. Much of the rise in the transportation segment is attributed to the growth in the company’s last mile and truck brokerage business included within its North American operations.

The freight brokerage business included in the North American operations grew from $386.2 million in 1Q15 to $512.7 million in the first quarter of 2016. The last mile revenues went up by 33% to $178.9 million in the reported quarter from $134.1 million in 1Q15. This is mainly due to the spurt in online sales, acquisition synergies, cross-selling to the customers, and expansion of e-commerce activities.

In the European operations, the global forwarding business grew by 83.4% from $45.1 million to $82.7 million. This was due to a new business initiative by XPO’s largest customer in late 2015. The intermodal revenues were negatively impacted by excess truck capacity and lower fuel prices. The LTL (less-than-truckload) business revenues per hundredweight excluding fuel surcharge went up 4.2% in 1Q16 on a year-over-year basis.

Management outlook

XPO’s management expects the European transportation segment revenues to grow by 4% to 5% in 2016. The transportation segment is very cyclical in nature. The company expects favorable macroeconomic conditions in Europe compared to North America. The company further anticipates e-commerce growth to fuel the last mile business in the US and e-fulfillment business in Europe.

XPO foresees lower tonnage but better pricing in the LTL business going forward. In the truckload business, it expects higher volumes and lower pricing in the near future.

Peer group segmentation

As discussed earlier, XPO operates in two segments. In its peer group, ArcBest (ARCB) operates through five reportable segments. Old Dominion Freight Line (ODFL) and SAIA (SAIA) conduct operations through one reportable division. YRC Worldwide (YRCW), another major LTL operator in the US, operates through two reportable verticals.

Investors can invest in the Guggenheim S&P 500 Equal Weight ETF (RSP), which is a growth ETF. Prominent companies in diverse industries are included in the portfolio holdings of RSP. The major transportation stocks in RSP include Norfolk Southern (NSC) and CSX (CSX).