XPO Logistics, Inc. today announced financial results for the third quarter 2019. Revenue was $4.15 billion for the quarter, compared with $4.34 billion for the same period in 2018. Net income attributable to common shareholders was $117 million for the quarter, compared with $101 million for the same period in 2018. Operating income was $229 million for the quarter, compared with $209 million for the same period in 2018. Diluted earnings per share was $1.14 for the quarter, compared with $0.74 for the same period in 2018.
Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $121 million for the third quarter 2019, unchanged from the same period a year ago. Adjusted diluted earnings per share, a non-GAAP financial measure, was $1.18 for the quarter, compared with $0.89 for the same period in 2018.
Adjusted net income attributable to common shareholders and adjusted diluted earnings per share for the third quarter 2019 exclude: $11 million, or $8 million after-tax, of restructuring costs, primarily severance; and a benefit of $4 million, or $3 million after-tax, of non-cash unrealized gains on foreign currency contracts.
Adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), a non-GAAP financial measure, increased to $438 million for the third quarter 2019, compared with $415 million for the same period in 2018. Adjusted EBITDA for the third quarter 2019 excludes $11 million of restructuring costs, primarily severance.
For the third quarter 2019, the company generated $278 million of cash flow from operations and $257 million of free cash flow, a non-GAAP financial measure. Reconciliations of non-GAAP financial measures used in this release are provided in the attached financial tables.
Updates 2019 Financial Targets
The company updated its full-year 2019 targets for revenue, depreciation and amortization, effective tax rate and cash taxes, and reaffirmed its targets for adjusted EBITDA, free cash flow and net capital expenditures, as follows:
• Revenue of (2.5%) to (4.0%) year-over-year, from (1%) to 1% previously; which translates to organic revenue growth, a non-GAAP financial measure, of flat to 1.0%, from 2.5% to 4.5% previously. The update to revenue reflects the company’s expectation for continued softness in the macro environment;
• Adjusted EBITDA in the range of $1.675 billion to $1.725 billion, or year-over-year growth of 7% to 10%, unchanged from prior guidance;
• Free cash flow in the range of $575 million to $675 million, unchanged;
• Net capital expenditures in the range of $400 million to $450 million, unchanged;
• Depreciation and amortization in the range of $745 million to $765 million, from $765 million to $785 million previously;
• Effective tax rate in the range of 23% to 25%, from 25% to 28% previously; and
• Cash taxes in the range of $110 million to $130 million, from $130 million to $150 million previously.
The company’s 2019 targets for free cash flow and cash taxes assume cash interest expense of $275 million to $290 million. The company continues to expect an incremental benefit to free cash flow of $125 million to $150 million from trade receivables programs in 2019.
CEO Comments
Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “In the third quarter, we grew EPS by 54% and adjusted EPS by 33% year-over-year. We also delivered a solid beat on adjusted EBITDA, outpacing the macro through cost control and margin discipline. In less-than-truckload, our adjusted operating ratio was a third quarter record. We remain firmly on track to generate at least $1 billion of EBITDA from LTL in 2021.”
Jacobs continued, “Our significant investments in technology are creating tailwinds across our operations. We’re executing on 10 initiatives that represent a pool of $700 million to $1 billion of potential profit improvement over the next several years. One large opportunity is to apply our XPO Smart productivity tools to the $5 billion of annual costs related to our variable labor spend. All 10 initiatives are specific to XPO and largely independent of the operating environment. We’re very focused on the size of the prize and the meaningful potential uplift to our profitability.”
Third Quarter 2019 Results by Segment
• Transportation: The company's transportation segment generated revenue of $2.68 billion for the third quarter 2019, compared with $2.85 billion for the same period in 2018. The reduction in segment revenue primarily reflects a decrease in freight brokerage and direct postal injection revenue from the company’s largest customer, lower rates in truck brokerage and unfavorable foreign currency exchange, partially offset by growth in managed transportation.
• Operating income for the transportation segment was $208 million for the third quarter 2019, compared with $196 million for the same period in 2018. Adjusted EBITDA for the segment was $333 million for the quarter, compared with $326 million for the same period in 2018.
• In North American LTL, yield, excluding fuel, improved by 2.9% year-over-year for the third quarter 2019. The third quarter operating ratio for LTL was 82.3%. Adjusted operating ratio, a non-GAAP financial measure, was a third quarter record at 80.8%, a 460 basis point improvement year-over-year.
• Logistics: The company's logistics segment generated revenue of $1.51 billion for the third quarter 2019, compared with $1.52 billion for the same period in 2018. Organic revenue growth was 2.4%, led by consumer packaged goods, food and beverage and aerospace in North America, and by e-commerce in Europe, largely offset by a reduction in business from the company’s largest customer.
• Operating income was $61 million for the third quarter 2019, compared with $59 million for the same period in 2018. Adjusted EBITDA for the segment was $142 million for the quarter, compared with $128 million from the same period in 2018. The increase in adjusted EBITDA primarily reflects growth from existing customers and from new business startups in recent quarters, offset in part by a reduction in business from the company’s largest customer and unfavorable foreign currency exchange.
• Corporate: Corporate SG&A expense was $40 million for the third quarter 2019, compared with $46 million for the same period in 2018.
Nine Months 2019 Financial Results
For the nine months ended September 30, 2019, the company reported total revenue of $12.51 billion, compared with $12.89 billion for the same period in 2018. Net income attributable to common shareholders was $282 million for the first nine months of 2019, compared with $306 million for the same period in 2018. Operating income was $619 million for the first nine months of 2019, compared with $578 million for the same period in 2018. Earnings per diluted share was $2.63 for the first nine months of 2019, compared with $2.26 for the same period in 2018.
Adjusted net income attributable to common shareholders was $312 million for the first nine months of 2019, compared with $334 million for the same period in 2018. Adjusted earnings per diluted share was $2.91 for the first nine months of 2019, compared with $2.48 for the same period in 2018. Adjusted net income attributable to common shareholders and adjusted earnings per diluted share for the first nine months of 2019 exclude: $28 million, or $20 million after-tax, of restructuring costs, primarily severance; a non-cash charge of $6 million, or $4 million after-tax, related to the impairment of customer relationship intangibles; $5 million, or $4 million after-tax, of non-cash unrealized losses on foreign currency contracts; $5 million, or $4 million after-tax, of debt extinguishment costs; and $2 million, or $2 million after-tax, of transaction, integration and rebranding costs.
Adjusted EBITDA for the first nine months of 2019 increased to $1.24 billion, compared with $1.18 billion for the same period in 2018. Adjusted EBITDA for the first nine months of 2019 excludes: $28 million of restructuring costs, primarily severance; and $2 million of transaction, integration and rebranding costs.
