EUR 850.00 For Business Accounts Only

Morningstar | XPO Updated Forecasts and Estimates from 26 Feb 2019

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. Roughly 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. The firm recently announced that its largest customer (undisclosed) has chosen to in-source a large swath of the last-mile postal-injection and freight brokerage business it gives to XPO--roughly $600 million in annualized revenue will likely disappear in 2019. The departing revenue is a painful setback, but we still believe XPO has plentiful opportunities for growth in the years ahead, especially in the fragmented asset-light truck brokerage market and as the final-mile heavy goods delivery landscape evolves.