Q1 2023 XPO Logistics Inc Earnings Call
Creations of $17 million in the quarter representing.
Representing diluted earnings per share of <unk> 15.
This compares to income of $32 million and earnings of <unk> 28 per share a year ago.
The year over year decline in income from continuing operations is primarily attributable to higher restructuring and transaction and integration costs.
In the first quarter, we had $24 million of restructuring charges that impacted all of our segments.
In addition, we had $22 million of transaction and integration costs related to the spinoff last year.
We expect that these costs will materially stepped down as we move forward in the year.
Our adjusted tax rate was approximately 19% due to the benefit of some discrete tax items this quarter.
And on an adjusted basis, our earnings per diluted share for the quarter was 50, <unk>, which is up 22% from a year ago.
And we generated $76 million of cash flow from continuing operations and deployed $224 million of Capex.
Moving to the balance sheet, we ended the quarter with $309 million of cash on hand.
This cash combined with available capacity under committed borrowing facilities gave us $811 million of liquidity at quarter end.
We had no borrowings outstanding under our ABL facility.
And our net debt leverage at the end of the quarter was two two times trailing 12 months adjusted EBITDA.
Earlier this week, we extended our $200 million euros securitization facility in Europe to July of 2026.
And we're currently evaluating opportunities to refinance our term loan maturing in 2025 with new secured and unsecured debt.
Now I'll turn it over to Ali who will provide an overview of our operating results.
Thank you Carl I'll start with a review of the first quarter operating results for our North American LPL segment.
The impact of the economy was evident throughout the quarter as demand for LPL stayed below historical levels driving a three 3% decline in our weight per shipment.
We partially offset this with a one 5% increase in shipment count led by 9% growth in our local channel.
This is a direct reflection of service improvements in the network.
As a result, we were able to limit the decline in tonnage per day to one 8%.
On a monthly basis compared with 2022 January tonnage was up two 8%.
February was down 2% and March was down five 5%.
Looking just at shipment Count January was up 5% February was up one 1% and March was down 5%.
Yield ex fuel increased by one 4% in line with our outlook.
The year over year improvement held relatively steady on a monthly basis throughout the quarter.
As Mario mentioned mix has continued to be a headwind to yield, but our underlying trends remained solid with contract renewal pricing up four 5% in the quarter versus last year.
In April tonnage was down 2% compared with last year, while shipment count was up 3%.
On a sequential basis, our April tonnage was up 2% versus March and shipment count was up 3%.
Both outperforming typical seasonality.
Regarding yield we expect second quarter yield ex fuel to continue to be up year over year at approximately the same level as the first quarter improvement.
We're very focused on driving yield growth by elevating service and being able to price based on the increasing value we're providing customers.
This will naturally translate to more yield over time and beyond that there are a number of other levers we're pulling to accelerate growth.
For example, we're taking additional pricing on accounts that aren't meeting our expectations.
We're also growing accessorial, ensuring we're getting compensated for the value added services, we're providing.
Turning to our margin performance, our first quarter adjusted operating ratio was 89, 6%.
Which is unfavorable by 70 basis points compared to a year ago.
We had a headwind of 110 basis points from depreciation expense driven.
Driven by a higher capital investment in the business.
Excluding this headwind adjusted or would have improved versus last year.
On a sequential basis, we improved adjusted or by 70 basis points compared to the fourth quarter, which is an outperformance of 120 basis points versus typical seasonality.
Moving to our European business, we delivered another solid quarterly performance with organic revenue growth of 5%, despite a soft macro backdrop.
This was propelled by a mix of new customer wins and contract renewals.
Volume and pricing in Europe were both higher than the year ago period by low single digits.
And two of our key markets, Spain, and the U K generated constant currency revenue growth of 11% and 9% respectively outperforming the European business overall.
On the same basis, France was slightly positive year over year.
Before I wrap up I want to mention the 8-K, we released last month, which outlines some updates to our financial reporting.
It also includes our damage claims ratio data as a key measure of our service performance.
Starting with the current quarter will be reporting monthly tonnage numbers as well.
These changes improved disclosure and make our reporting more comparable with industry peers.
The recasting and the new performance metrics should give you greater visibility into our business.
With that we'll now take your questions operator, please open the line.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
We ask that you. Please limit yourself to one question when you come into the queue and if you have any additional questions you're welcome to get back in the queue and we will take as many as we can thank you.
One moment, please when we poll for questions.
And the first question comes from the line of body Johnson with BMO. Please proceed with your question.
Hey, good morning, Thanks for taking my question.
Mario maybe.
No.
Not many companies former board operating Excellence Committee I, just wanted to get your thoughts about.
How should investors think about the role of this committee and the purpose of this maybe kind of as we move forward.
You know in the next couple of years.
Thanks for the question <unk>.
Well first we obviously you recently added Wes Frye, our board and fresh.
And west is a fantastic LTM operator isn't Nokia legend, so what that committee would do is effectively both Wes Frye and Allison Landry said on it as well as myself.
And its focus on the big needle movers is focused on the big levers of how we're going to improve operationally over the years to come to expand I would also do think ratio meaningfully as we execute on our LCL to point the old plan and so that's the purpose of the operational excellence gold.
The committee on the board.
Okay. Thank you.
And the next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks, Good morning, So maybe just a follow up there.
How engaged is Wes it's very recent with Dave what whereas they've been focused to start do you think these additions change either the timeline or the magnitude of margin improvement you've been talking about and then more near term just as you try them.
And sound and talk more like the other <unk>.
Typically get some near term operating ratio.
Expectations from the others so.
What's there in Q2 operating ratio.
You got it Scott so when the.
So they've obviously, you've just joined our team and he's been a fantastic additions our team. He is one of the best operators in the industry and you can help us accelerate the LPL 2.0 plan. He already has spent quite a bit of time in the field with our frontline employees in both the west and Dave see what we see which is a massive opportunity.
To improve our operating ratio over the years to come now early feedback from Dave Obviously is very impressed with the progress we've made in improving our service quality in a very short period of time is assessed by our people and the culture and the winning momentum that we have across across the team and by our technology platform.
Okay helpful. Thank you guys.
Thank you.
And the next question comes from the line of Jon Chapell with Evercore ISI. Please proceed with your question.
Thank you and good morning Ali.
Ali.
I think you were saying kind of drive productivity there I'm, just trying to understand where the productivity savings really come from you've already taken a fair amount of P. T O.
It's really been helpful to the margin, but are you cutting heads while growing doors is this just a function of attrition is it something with negotiating contract terms, how do we think about labor cost being so important kind of trending down amid kind of the L. T L. Two point growth initiatives.
Thanks for the question Jon So the current plan that we talked about today that represent greater than $50 million of annualized head count related cost savings and that's gonna be spread across L. T out Europe , and corporate but more than two thirds of those cost savings are going to benefit L. T L. Specifically and you'll start to see the full.
We'll run rate benefit of those cost savings starting in the third quarter and look even beyond that we see further opportunities to reduce costs at LCL, while continuing to invest in the network.
If you look at our variable labor hours, we've done a great job there we're holding onto drivers. So for example, if you look at the first quarter labor hours were down 30 basis points year over year, while our shipment count was up one 5% and we'd expect to see a sequential improvement in those labor hours in the second quarter and then into the second half of the year.
<unk>.
Okay, but just to be clear.
John It's actually both so if you look at the first quarter for example, head count was down about 1% sequentially and given the cost actions that we announced you should see a bigger step down in the second quarter and head count and then we should see further reductions in head count in the second half of the year.
Got it that's really helpful. Thanks Ali.
Hey, Thanks. Good morning, guys, maybe you can talk a little bit about pricing. So when we look at what you guys had been reporting ex fuel revenue per hundredweight, we've seen growth there, but maybe sequential deceleration over the course of the last couple of quarters and it sounds like the core contracted piece of the business is still trending up.
Taking this headwind was actually greater in the first quarter relative to the fourth quarter now if you take a step back as you pointed out underlying pricing trends remained strong contract renewal pricing was up mid single digits and we're implementing a number of initiatives on the yield side that we would expect to drive stronger yield growth overtime.
Right.
But just to be clear about that sequential is that headwind from the mix you expect to continue into Q2, where does that begin to abate as we move through the rest of the year.
Hey, good morning, Thanks for taking the question.
So maybe just stepping back and looking at the strategy you've been working on the last couple of quarters.
Leaning into some of these channels a bit differently than it has in the past.
Do you think is getting the impact you expected so far from a density in the shipments.
Customer retention perspective.
Well our strategy is actually working and we have a strong strategy with Atwood MTL to point the old plan and the first part of it is focusing on providing best in class service and when you see those service improvements what we hear from our customers as excitement to give us a bigger share of wallet and we have the bigger.
How you think on the freight as we get into our network just.
Just to give you. An example here recently and I was meeting with some of our customers in this out and you could see you could hear the feedback where they see us improving our service product on their scorecards, and they're giving us a bigger access through the freight that they have the second piece of that out investing in our network and when you look on the on that portion of it we've made tremendous.
We've added more trucks to our fleet our fleet age is down to five two years, which helps with efficiency helps with lower maintenance cost, but it also helps us in sourcing our third party line haul and then we can have capacity in the right places, where we need it when we see stronger demand from the customer and then on the yield side the initiatives.
And just to clarify on the on the yield it sounds like accessorial theyre going to be.
Something you just kind of catching up to the market or are these additional opportunities you're digging into as you step forward into this this year.
Hey, Brian This is al Li so it's a bit of both so we want to make sure that we're getting paid consistently and fairly for the premium services. We're providing so a few examples are if a customer wants to get a delivery during a certain time window, we charge them for an appointment based delivery or if a customer wants a guaranteed delivery.
For noon, we would charge them for that asset oils right now, we're roughly about low double digits of overall revenue and so we see we see a great opportunity to improve that over time.
Okay. Thank you very helpful.
And the next question comes from the line of Brandon <unk> with Barclays. Please proceed with your question.
Hey, good morning, and thanks for taking my question I guess can you guys talk about what network changes you might be affecting both in line haul and won't cooperations.
To drive both service improvement, but also maybe better cost productivity.
I guess first starting on the on the network side I would investments in the network at about expanding capacity in those markets, where do we have a need for having more doors or more physical space and to give you. An example here, whereas just this last month, we just expanded our Salt Lake City tour.
Stronger demand from our customers and being able to have this additional space will have will give us long term tailwind in terms of increasing capacity in terms of line haul one of our big goals is to in source third party line haul and so he had on the short term, we're going to get benefit from.
The rates that we're seeing in the truckload market, but over time by 2027, we want to cut our.
Your line haul as a percent of revenue and half by in sourcing more of these miles and having our own drivers and I would own assets moving debt free which is good both for service and for cost reasons as well.
As well as additional improvements in how we optimize the movement of freight in our line haul network there.
Thank you.
On a year over year basis, they did decelerate through the quarter. So tonnage in March was down about mid single digits. However, as we said in April we have seen a modest improvement that tonnage is down about low single digits in April and as Mario mentioned, we've seen a bit of a tick up on the industrial side, but the majority of that improvement is being driven.
And plan to make for instance, going forward around servicing and yield et cetera. Thanks.
Some efficiency driven by our technology platform and other process changes we're doing in the field now when you look at it here in the first quarter, our labor hours were down roughly 30 basis points, while the shipment count was up eight points in the half and the way, we identify where we flex those labor hours is driven by our.
And maybe kind of since your commentary around maybe the stronger industrial and slightly weaker retail kind of change that dynamic at all.
We're also seeing mixed feedback there some customers are seeing flat demand year on year or slightly up in some cases, what others are seeing softer demand that it depends on the type of product that they are selling but generally you do see a shift from the consumer spending more on discretionary type of items to focus more on services and you can see that.
Evident in the retail space, where these customers again are seeing the softness again put us in April we've seen the trends accelerate.
Typical seasonality from the month of March for the month the month of April but that feedback again from the customer is mixed at this at this point.
Thank you.
Thank you.
And our next question comes from the line of Jeff Kauffman with vertical Research partners. Please proceed with your question.
Thank you very much and good morning, everyone.
I wanted to address the fleet age question and just get an idea as you continue to ramp up this capital spending when you ramp up the trailer output where does that average age go by the end of 2023, whereas that average age. Let's say you were targeting 2020 for 2025, where we bringing that.
Five two years down to.
Thanks, Thanks chip.
Our long term goal is to be below five to be somewhere between four and five years would be the ideal the ideal the average fleet age and obviously for us in LPL, we usually get the younger trucks. The newer trucks on our line haul runs to capitalize on fuel efficiency in those in those runs and then <unk>.
The factors in the city, where on these considerably longer now we took this down from $5 nine years at the end of last year to five two years at the end of the first quarter, but we did frontload a good amount if I would capex here in the first quarter, where we got 700, new trucks through through the through the.
<unk> of the of the first quarter now when we think about the end of the year. It all depends on what the Oems can do for US we have seen it's still tight to get trucks. So that you can get all the all the units you want to get but at the same time. It is getting better when they are giving us the highest allocation in the back half, but we will see how that will play out in terms of fleet age, but we would expect that to.
To keep on coming down as we as we add more of these newer trucks to the fleet.
And just a follow up on that point and thank you.
We have new rules coming out of the California Air Resource Board last week I know the EPA came out with their 27 mandate nothing that needs to be done right away, but where are you in terms of a switch.
Switching to things like electric vehicles fuel cell trucks, Nat gas trucks looking at kind of the zero emission rules for California at least youre going to start to kick in in 2024.
Yes, so when we.
We look at that we do have pilots coed on any truck order for electric trucks here in <unk>.
'twenty three for California, now today, a lot of what we're seeing is some of these larger class eight trucks are it's still tough to get the amount of mileage, we need to get on them and have the charging infrastructure to be able to charge those trucks to use them. Both in the PND in vitamins as well as the line haul environment.
However, we do have a number of these trucks orders here for the year and a lot of these are straight trucks to operate in the city for city deliveries.
And we're obviously working with the with the locally on how we meet all of the mandates from from the state of California, but also very close to the American Trucking Association, which is obviously, helping drive a lot of these regulations as well and in terms of how we how we obviously.
Our fleet there to meet to meet all of these.
At this time, we have reached the end of the question answer session and I would now like to turn the floor back over to Mario Harris for any closing comments.
Thank you for all your time today and as you can see we're moving forward with a realistic view of the macro but it doesn't impact the execution of our plan.
Which is elevating customer service and you invest.
Investing in capacity for the long term.
Accelerating our yield growth overtime and driving further cost efficiencies.
These four avenues are the key to unlocking the massive potential within next few wells.
We'll give you an update on our progress on our next earnings call. Operator, you can now end the call. Thank you.
Thank you Sir this does conclude today's teleconference, everyone and thank you for your participation and have a great day.
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