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XPO Completes Con-way Purchase; Picks LTL Chief, Begins Cost Cuts
XPO Logistics Inc. last week began consolidating its latest acquisition, Con-way Inc., and also announced higher profit targets as well as revenue that tripled in the third quarter.
In its first week of ownership after officially completing the $3 billion acquisition, XPO trimmed more than $30 million in costs annually by cutting 250 jobs and eliminating duplicate services, CEO Brad Jacobs told Transport Topics on Nov. 4. XPO targeted $170 million to $210 million in annual savings at Con-way when the purchase was announced Sept. 5.
In addition, XPO named Tony Brooks to head the underperforming former Con-way less-than-truckload unit, which generates more than $3.5 billion in annual revenue.
XPO’s purchase of Con-way vaults the buyer to No. 3 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada, where Con-way was No. 4. Earlier this year XPO bought France’s Norbert Dentressangle for $3.53 billion. Combined, the companies added more than $11 billion in revenue annually.
XPO raised its forecast for earnings before interest, taxes, depreciation and amortization to $1.25 billion next year from $1.1 billion and set a $1.7 billion EBITDA target for 2018 after integration of Con-way.
Third-quarter revenue more than tripled to $2.36 billion, including Norbert Dentressangle and 2015 acquisitions other than Con-way. The net loss widened to $35.4 million, or 36 cents, excluding one-time costs. In the 2014 quarter, XPO lost $11.6 million, or 23 cents.
Brooks, who arrives Nov. 11, has run “three of the largest fleets in North America,” Jacobs said, during a career that also has included Dean Foods, Sears Holdings, Pepsico/FritoLay and Roadway Express.
“It is important to note that what Con-way truly needs at this point is to find a true turnaround stud,” Stifel Nicolaus analyst John Larkin said, after profit-margin growth at the LTL carrier trailed competitors in recent years. “Brooks’ résumé reads more as the day-to-day operations player to support that role.”
The LTL unit, whose full results haven’t been announced, included 3% less tonnage, in line with recent quarters, Jacobs said. Pricing rose 4%, he said, sketching a “relatively or slightly soft tonnage market and a strong pricing market.”
In addition, Jacobs said the company plans to decide whether to sell the former Con-way Truckload unit within a month after receiving multiple offers for that business.
Jacobs told TT “we see the business growing across the board” throughout the company after a third quarter when EBITDA was $166 million, or $25 million above the average analysts’ estimate.
For the quarter, XPO posted $44.3 million of operating income, which excludes taxes and interest, improving from a $13.6 million loss in the 2014 period.
“While the company still has a lot to prove as it moves from an acquisition story to more of an organic growth story and to more of an asset-heavy model, our overall take is that results were a step in the right direction for XPO,” according to a report from Nate Brochmann at William Blair.
Jacobs outlined progress and prospects in several areas.
All units have delivered “significant margin improvement” in the third quarter, he said on a conference call, where he identified future cross-selling between business units “a huge lever for growth that is right at our doorstep. We are going to shed a lot of unprofitable business.”
Consolidation of purchasing and other back-office functions also will produce savings,he said.
Third-quarter results were stronger in every unit, he said, with the exception of intermodal, which was “not shining.”
Asked about further job cuts, Jacobs said, “We don’t have large-scale layoff plans at the moment.”
XPO now is organized into two segments, transportation and logistics. Transportation unit revenue growth from existing businesses slipped to 3.4% in the third quarter, including fuel surcharge, from 10% in the second quarter of this year.
Jacobs said the U.S. economy is sluggish, though there is more optimism on Main Street than on Wall Street.