XPO (NYSE: XPO), the less-than-truckload (LTL) carrier that operates in North America and Europe, was among this week's winners after the company posted strong results in its third-quarter earnings report on Monday, outperforming expectations and gaining market share in a difficult environment for the trucking industry.
According to data from S&P Global Market Intelligence, the stock was up 17.1% for the week as of Friday at 1:31 p.m. ET.
Image source: XPO.
XPO delivers results in a difficult environment
XPO easily topped estimates in its third-quarter earnings report on Monday. Revenue was up 1.7% to $1.98 billion, ahead of expectations at $1.93 billion, and growth would have been stronger if you exclude the decline in the fuel surcharge in its North American LTL segment, where revenue grew 7.9% excluding fuel.
The company continued to make progress in key operational initiatives like lowering its damage claims ratio to 0.4%, its best ever and a significant improvement from 1.2% two years ago when it implemented its LTL 2.0 revamp plan.
Its adjusted operating ratio also improved sequentially by 140 basis points to 86.2% due to gains in volume, pricing, and labor productivity, and it gained market share in the industry as it took advantage of Yellow's bankruptcy earlier this year.
On the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from $262 million to $278 million. XPO also reported adjusted earnings per share of $0.88, which was down from $0.95, but still well ahead of the consensus at $0.63.
Wall Street largely responded positively to the news with Jefferies upgrading the stock from hold to buy, commenting on the strong earnings beat and guidance. It also expressed confidence in the long-term margin opportunity as XPO has targeted 600 basis points in operating margin improvement from 2021 to 2027.
Several other analysts also raised their price targets, citing the company's operational improvements.
Can XPO keep climbing?
XPO did not give specific guidance for the fourth quarter, but it sees tonnage up by low single digits, and it expects pricing to improve versus the third quarter.
Overall, the company is executing in a challenging environment, picking up market share, and improving its customer service, which puts it in a good position to drive profit growth when the economy strengthens.
Signs that the Federal Reserve may be done raising interest rates also pushed the stock higher toward the end of the week as XPO would benefit from softening in the interest rate environment. If more favorable macro signals come out, the stock could take another leg up.
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Jeremy Bowman has positions in XPO. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool recommends XPO. The Motley Fool has a disclosure policy.
