Morningstar | XPO Has Enjoyed Solid Pricing Tailwinds Throughout 2018 on Tight Truckload Market Capacity
XPO Logistics started in mid-2011, when entrepreneur Brad Jacobs led an equity investment in expedited freight brokerage company Express-1 Expedited Solutions. He changed the company's name to XPO Logistics and launched an acquisitive growth strategy targeting deals in the non-asset U.S. highway brokerage industry. By mid-2013, XPO's strategy began evolving well beyond traditional truck brokerage; subsequent transactions took the portfolio into last-mile logistics, intermodal, and contract logistics. 2015 marked an even larger shift, bringing the Norbert Dentressangle deal, which added significant contract logistics business in Europe, along with the purchase of less-than-truckload carrier Con-way. The latter thrust XPO into the asset-based trucking business--an unusual move for a U.S.-based third-party logistics provider. About 65% of XPO's gross revenue derived from various asset-light 3PL services, with 35% coming from asset-heavy trucking in 2017.The company halted the flow of mergers and acquisitions over the past few years, in part to boost its focus on integration initiatives, profitability improvement, and debt reduction. We think this has been a prudent idea, considering the need to drive top- and bottom-line synergies across its extensive portfolio of acquired transportation businesses, not to mention elevated financial leverage. Overall, XPO has executed well over the past few years in terms of avoiding integration snafus while driving down unnecessary and duplicative costs in the former Con-way LTL operations, and we think healthy organic increases in truck brokerage activity partly point to cross-selling success. While we don't bake unannounced acquisitions into our model assumptions, management indicated the firm is back on the hunt for deals. We wouldn't be surprised to see a transaction in 2019 as the firm continues to look for additional opportunities to expand its unique asset-light/asset-heavy operating model.XPO Logistics is a global provider of supply chain solutions to various companies. The company has two reporting segments: Transportation and Logistics. The company's Transportation segment facilitates the movement of raw materials, parts and finished goods. The company's transportation services include truck brokerage, expedite, intermodal, drayage, last mile, less-than-truckload, full truckload, global forwarding and managed transportation. The company's Logistics segment services include warehousing, distribution and inventory management, omnichannel and e-commerce fulfillment, reverse logistics, cold chain solutions, packaging and labeling, factory support, aftermarket support and order personalization services.
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