Presentation Script and Slides
The following script should be read in conjunction with the accompanying slide presentation, which contains, among other information, source data for certain information set forth in the script.
Thank you for joining us.
Over the past 10 years, we’ve built XPO into one of the world’s leading providers of supply chain services. The August 2, 2021 spin-off of our logistics segment simplified our business and positioned us for significant growth as a pure-play freight transportation company.
In the third quarter, our growth continued to outpace expectations. We reported the highest revenue of any quarter in our history, along with a solid beat on the bottom line. Our truck brokerage business had another phenomenal quarter, while our less-than-truckload results were mixed, with some deterioration in our operating ratio despite higher revenue and yield. In our discussion below, we cover some components of the near-term and strategic actions we’re taking in North American LTL.
Company-wide, our 42,000 employees currently serve more than 50,000 customers across 756 locations. Our two core lines of business – less-than-truckload (LTL) and truck brokerage – generate the vast majority of our revenue and more than 90% of our operating income. We believe that each of these businesses has strong competitive advantages tailored to the opportunities in their respective addressable markets.
Our core LTL and truck brokerage businesses are both high-ROIC businesses that are capitalizing on a combination of macro trends, secular industry tailwinds and company-specific initiatives to drive revenue and profit growth.
Exposure to fast-growing verticals: We have outsized exposure to verticals such as
e-commerce that are growing much faster than the overall market, and to the rapidly recovering industrial sector. As a leading provider of road freight capacity, our services are critically important to shippers and to their end-markets.
|·||Industry leader in technology: Our first-mover advantage as an industry innovator is rooted in the more than $3 billion we’ve spent on technology since 2011. We have XPO-specific initiatives that are delivering growth and expanding our margins, positioning our company to thrive across market cycles. Most of these initiatives are managed within our digital ecosystem, where our brokerage platform also resides.|
|·||Scale benefits: Our scale in both LTL and brokerage is important to customers and gives us the ability to drive significant operating leverage, benefit from purchasing power and continue to innovate.|
|·||Disciplined capital allocation and commitment to investment grade: We have a long history of generating a strong return on capital – for the trailing 12 months ended September 30, 2021, our ROIC for the full company was 33%. Our EBITDA growth and strong free cash flow support our continued investments in the business and our deleveraging toward our target leverage of 1.0x to 2.0x by the first half of 2023. This is a key step in our process to achieve an investment-grade credit rating.|
|·||Enviable record of superior shareholder value creation: In the last decade, XPO was the 7th best-performing stock on the Fortune 500, according to Bloomberg market data.|
|·||Strong culture: Our secret sauce has always been the world-class people we attract to XPO – not just our senior executives, but also the thousands of other professionals who contribute to our performance while representing our values.|
XPO is a top-three provider in two highly compelling freight transportation sectors with vast, fragmented markets and growing penetration.
While we hold leading positions in LTL and truck brokerage in North America, our market share in each sector is in the single digits. We have approximately 8% share of the $42 billion LTL market, and 3% share of the truck brokerage market. Truck brokerage is a $64 billion market in North America, with about $296 billion of additional truckload spend that could be going through brokers. We view this huge truckload opportunity as a fertile environment for market share growth in our business.
In Europe, we serve many renowned customers and hold leading positions in key geographies. We’re the #1 truck broker in France and Iberia (Spain / Portugal), the #3 truck broker in the UK, #1 LTL provider in France and Iberia, and we have #1 single-owner LTL network in the UK.
Our North American LTL segment is asset-based. We provide customers with geographic density and day-definite regional, inter-regional and transcontinental freight services with one of the industry’s largest networks of tractors, trailers, professional drivers and terminals. Our services include cross-border US freight movements to and from Mexico and Canada, as well as intra-Canada service.
The key factors driving growth and margin expansion in our LTL business are:
|·||Critical capacity and national lane density, supported by 291 terminals in North America, with large economies of scale. Our LTL business represents over three decades of investment, with network coverage of approximately 99% of all US zip codes and key routes in Canada. In October, we opened the second largest LTL terminal in our network in Chicago Heights: 264 doors and 150,000 square feet of facility space. Our 12,000 professional XPO truck drivers are particularly valued by our customers, as the pervasive driver shortage is predicted to continue;|
|·||A company-specific action plan to enhance our LTL network in North America and drive growth. We’ve taken a number of actions to enhance network efficiencies, and we have longer-term strategic actions underway. Together, these include:|
|–||Improving network flow with selective freight embargoes, with the cost embedded in our 2021 guidance;|
|–||Driving pricing by pulling the January 2022 General Rate Increase forward to November, and instituting accessorial charges for detained trailers, oversized freight and special handling;|
|–||Expanding the 2022 graduate count at our US driver training schools to more than double the nearly 800 graduates we’ll have in 2021;|
|–||Significantly increasing production capacity at our trailer manufacturing facility in Arkansas, with the expectation of nearly doubling the year-over-year number of units produced in 2022; and|
|–||Importantly, allocating capital to expand our North American LTL door count by 900 doors, or approximately 6%, over the next 12 to 24 months to improve network-wide operating efficiency and support future revenue growth.|
|·||Significant opportunities to leverage our LTL technology to improve profitability beyond the sizable margin gains we’ve already achieved. Our proprietary technology underpins the improvements in our yield, and it’s helped us improve our adjusted operating margin by nearly 1,000 basis points since 2015;|
|·||Favorable industry fundamentals, including limited commoditization, firm pricing dynamics in North America, rising industrial demand and the continued growth of e-commerce, which is driving smaller, more frequent shipments; and|
Read More: Presentation Script and Slides – Form 8-K | MarketScreener