XPO first-quarter revenue falls as COVID brought business to a crawl in mid-March

XPO Logistics Inc. (NYSE: XPO) on Monday reported first-quarter revenue of $3.86 billion, down from $4.12 billion in the first quarter of 2019, as the COVID-19 pandemic in mid-March derailed what had been a relatively good quarter.

Net income was $21 million for the quarter, compared with $43 million for the same period in 2019, XPO said. Operating income was $81 million for the quarter, compared with $132 million for the same period in 2019. Diluted earnings per share was 20 cents in the quarter, compared with 37 cents for the same period in 2019. 

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) dropped to $333 million from $343 million, XPO said. First-quarter 2020 adjustments excluded $47 million of transaction, integration and restructuring costs mostly related to the company’s termination of plans to sell all but its North American less-than-truckload (LTL) unit.

In the quarter, XPO generated $95 million of free cash flow, a material swing from $96 million of negative free cash flow in the 2019 quarter. Brad Jacobs, the company’s chairman and CEO, said the company did a much better job in the 2020 quarter of managing its working capital.

In a statement Monday, Jacobs stressed that XPO “has $2.5 billion of liquidity and an ironclad business model. Even against the current backdrop, we’re on track to generate hundreds of millions of dollars of free cash flow this year. The company said it would reduce its 2020 capital expenditures by $200 million to $450 million.

XPO shares, which fell fractionally during regular trading Monday, rose nearly 2% in after-hours trading.

XPO’s transportation segment generated $2.46 billion of revenue, down from $2.6 billion in 2019. The decline stemmed from the COVID-19-related slowdown and the lingering impact of Amazon.com. Inc. (NASDAQ: AMZN) withdrawing about $600 million in business from XPO in late 2018 and early 2019, XPO said.

XPO’s North American LTL operating ratio, the ratio of revenues to expenses, came in at 85.8%, meaning that the unit spent nearly 86 cents for each dollar of revenue. Adjusted operating ratio came in at 83.4%, a first-quarter record and a 320-basis-point improvement over 2019 levels, according to XPO.

The company’s logistics segment generated first-quarter revenue of $1.44 billion, compared with $1.49 billion for the same period in 2019. The decrease reflected the company’s shedding low-margin business, the downsizing of volumes from Amazon and the impact of the pandemic on European logistics activity. XPO, like many companies, has withdrawn full-year earnings guidance due to the impact of the pandemic.

To some extent, XPO’s business is tracking the evolution of countries’ reopenings as governments look to resume, albeit haltingly, some form of normal business activity. For example, the company’s European business bottomed at the very start of April as governments there were still grappling with the health impact of the virus. As the month progressed and COVID-19 cases began to abate, XPO’s business picked up. The company’s French LTL business increased 23% from the first week of April to the last week, an astounding jump in such a short time span. In mid-April, 49 of XPO’s 390 European warehouses had closed. The number of closures has since been roughly halved, Jacobs said.

XPO plans to open a 638,000-square-foot warehouse in the U.K. next month in a joint venture with Swiss food giant Nestle, S.A. The project, which XPO owns and will operate exclusively for Nestle under a 15-year lease agreement, is considered XPO’s “warehouse of the future,” replete with advanced sorting systems and robotics.

The North American market, in particular the U.S., is “plodding along the bottom,” though the numbers seem to be stabilizing rather than continuing to fall. LTL volumes in April fell 20% year-over-year, Jacobs said.

The company’s last-mile deliveries of heavy goods performed well in the quarter, with revenue rising 9% year-over-year due to strong demand for a broad range of products ordered online and delivered to the home or, in many cases, inside the home. It also doubled, in dollar value, its renewals of global contract logistics business in the quarter as companies continue to offload non-core competencies like logistics to specialists like XPO, Jacobs said.