GXO Logistics, Inc. Q3 FY2024 earnings call

• GXO posted record revenues and adjusted EBITDA in Q3, with increasing momentum and sequential organic growth acceleration.
• Signed $226 million of new business wins in Q3, with a sales pipeline at over $2.4 billion, its highest in over two years.
• Customer service satisfaction scores are at an all-time high, and the company was recognized as a top logistics provider.
• Technology differentiation through automation and AI is creating efficiency multipliers.
• Successful projects like partnership with Zalando and large automated warehouse in France, and growth in Germany and beauty/wellness business via acquisitions.
• Reaffirmed 2024 guidance and expect acceleration in growth across regions in 2025.

In the third quarter, GXO generated record revenues of $3.2 billion, with year-over-year revenue growth of 28%. Organic revenue growth was 3%, which has accelerated sequentially. Adjusted EBITDA was a record $223 million, up 12% year-over-year. Adjusted diluted earnings per share was $0.79, up 14% year-over-year. Year-to-date, cash flow from operations was $363 million, an increase of 6% year-over-year, and free cash flow was $124 million. Net leverage was 2.9 times as of the end of the third quarter, expected to be around 2.5 times to 2.6 times by the end of 2024 and about 2 times by the end of 2025. Wincanton is performing above pre-deal expectations.

• Reaffirmed 2024 guidance: organic revenue growth of 2% to 5%, adjusted EBITDA of $805 million to $835 million, adjusted EBITDA to free cash flow conversion of 30% to 40%, and adjusted diluted earnings per share of $2.73 to $2.93.
• Expect acceleration of growth across all three regions in 2025, with Continental Europe leading, and confidence in multiyear growth outlook and 2027 targets.

• Factors like fluctuations in foreign exchange rates, global economic conditions, consumer demand, labor market, global supply chain constraints, and inflationary pressures could cause actual results to differ from guidance.
• CMA review of the Wincanton acquisition could potentially cause delays in integration and impact margins.

Q: Joe Hafling asked about geography and verticals, specifically organic growth across Continental Europe, UK, US and retail vs industrial trends.

A: Malcolm Wilson responded that there's positive growth across all regions, Continental Europe is leading, UK is strengthening, North America has better trends, with aerospace and defense strong in Q3, e-fulfillment driving over half of new business signings.

Q: Scott Schneeberger asked about Q4 confidence and free cash flow conversion.

A: Malcolm Wilson noted reaffirmed guidance with confidence in adjusted EBITDA, and Baris Oran added that excluding Wincanton, margin improved every quarter, and free cash flow conversion remains on track for 30%-40%.

Q: Chris Wetherbee asked about pipeline and Wincanton.

A: Malcolm Wilson said pipeline is up with diverse projects, and Baris Oran added Wincanton's margin is lower now but will improve with integration.

Q: Ravi Shanker asked about peak season and humanoids.

A: Malcolm Wilson said GXO is agnostic on shopping channels, and Kristine Kubacki noted interest in humanoid technology with piloting and partnerships.

Q: Brian Ossenbeck asked about CMA review and multi-tenant warehouse utilization.

A: Malcolm Wilson said CMA review may delay Wincanton integration, and Baris Oran explained multi-tenant network utilization improvement through sales focus and space filling.

Q: Brandon Oglenski asked about pricing and volume growth.

A: Malcolm Wilson said automated solutions have less competition, and Baris Oran noted volume environment improving with Q4 expected to be better than prior quarters.

Q: Bascome Majors asked about cyclical commentary and 2025 growth.

A: Baris Oran said organic growth improvement will continue into 2025 with acceleration.

Q: Jason Seidl asked about ecommerce returns and M&A.

A: Malcolm Wilson said returns business will lift with e-fulfillment recovery, and Baris Oran noted near-term focus on debt paydown and organic growth, not short-term M&A.

Q: Ariel Rosa asked about e-fulfillment demand and win rates.

A: Malcolm Wilson said demand driven by sales investment and market confidence, and Baris Oran explained win rates improved due to sales process investments.

Q: Tom Wadewitz asked about Shein/Temu and wallet share.

A: Malcolm Wilson said no significant impact from Shein/Temu, and Baris Oran noted growing wallet share with existing customers through predictable services and global reach.