Dive Brief:
- XPO’s operating income jumped 24.4% year over year to $148 million in Q4, attributable to local shipment growth, premium services expansion and other initiatives, executives said on an earnings call Thursday.
- The volume of local shipments, which are the LTL carrier’s highest-margin business, increased in the high single digits in the quarter, Chief Strategy Officer Ali Faghri told analysts. The growth followed a 10% YoY rise in local shipments in Q3.
- While service quality at record levels has enabled rate increases, XPO continues to be undervalued and is “just beginning to capture the massive pricing opportunity ahead of us,” Faghri said.
Dive Insight:
The strong fourth-quarter results don’t necessarily mean LTL demand will come roaring back this year from a two-year freight recession. But manufacturing sector growth in January bodes particularly well for XPO, whose freight mix consists of about two-thirds industrial customers.
In surveys, a growing number of customers have told the Greenwich, Connecticut-based carrier they foresee a gradual improvement in demand this year, XPO CEO Mario Harik said on the call.
“We are seeing much more optimism,” Harik told analysts.
The operating income growth came despite tonnage decreasing by 5.7% YoY in Q4, based on a 4.4% drop in shipments per day and a 1.3% decline in average weight per shipment, according to the company.
Despite freight demand weakness, XPO’s service improvement and growing premium offerings allowed it to boost revenue per shipment sequentially in every quarter for two consecutive years, Faghri said on the call. Its premium services include trade shows, cross-border shipments and retail store rollouts.
“This is one of our most promising underlying trends,” the chief strategy officer said.
