Less-than-truckload carrier XPO reported another strong financial performance at the bottom of the cycle. Shares of the company’s stock surged 8.8% in midday trading Thursday after stepping higher on Wednesday following a better-than-expected report from a competitor.
XPO (NYSE: XPO) recorded 260 basis points of operating ratio (inverse of operating margin) improvement during 2024 while the rest of the industry saw margin deterioration. XPO also guided to 150 bps of year-over-year OR improvement in 2025.
On a Thursday call with analysts, management noted more optimism among its customers.
A recent quarterly survey showed that customers expecting at least a modest uptick in demand during 2025 increased 10 percentage points from the prior-quarter survey. Half of its customers now expect an acceleration in demand during the first half of the year, with only 15% calling for a deceleration.
“We are hearing more positivity from customers than we have in the past,” said CEO Mario Harik on the call. “The majority expect a gradual improvement in demand this year.”
XPO reported fourth-quarter adjusted earnings per share of 89 cents, which was 26 cents better than the consensus estimate and 12 cents higher y/y. The adjusted number excluded transaction and restructuring costs but included a $34 million gain from the sale of real estate, or 21 cents per share.
The company’s LTL unit reported $1.16 billion in revenue, a 2.6% y/y decline. Tonnage fell 5.7% but was partially offset by a 1.7% increase in revenue per hundredweight, or yield. Yield was 6.3% higher excluding fuel surcharges.
The tonnage decline was the combination of a 4.4% decline in shipments and a 1.3% dip in weight per shipment. Tonnage was down 8.5% y/y in January, and the company said 3 points of the decline was associated with atypical winter weather. Tonnage is expected to be down y/y by a mid-single-digit-plus percentage in the first quarter (approximately flat sequentially).
However, the company said yield growth would accelerate in the period.
XPO reiterated a longer-term double-digit pricing opportunity ahead of it as improvements to its service offering help bridge the pricing gap with peers. On-time percentage improved for an 11th straight time during the fourth quarter, and its claims ratio declined to 0.2%.
The carrier is also changing its revenue mix to include more premium services and functions that incur accessorial charges. Lastly, it is growing volumes at local accounts, which typically have better margins, from roughly 20% of revenue to more than 30% over time. Local shipments were up by a high-single-digit percentage in the period.
