XPO, Inc. Q3 FY2024 earnings call

• Service quality: Damage claims ratio improved to 0.2% from 0.4% last year, on-time performance improved for 10th consecutive quarter.
• Capacity investments: Added nearly 15,000 trailers and over 4,000 tractors in three years; opened 21 of 28 acquired service centers, expecting to open remaining by early next year, resulting in ~30% excess door capacity.
• Yield growth: Excluding fuel, yield grew 6.7% y-o-y; renewal pricing increased high-single-digits for fifth consecutive quarter; local customer shipments up over 10% y-o-y.
• Cost efficiency: Reduced purchased transportation costs by 40% y-o-y; linehaul insourcing reduced outsourced miles to 13.6%, aiming for below 10% next year.

Company-wide, revenue grew 4% year-over-year to $2.1 billion, with adjusted EBITDA up 20% to $333 million and adjusted diluted EPS at $1.02, a 16% increase. LTL segment: Revenue up 2% y-o-y, excluding fuel up 5% y-o-y; adjusted EBITDA grew 18% to $284 million, with adjusted operating ratio improving 200 basis points to 84.2%. European Transportation segment: Adjusted EBITDA unchanged at $44 million. Corporate adjusted EBITDA was $5 million, compared to a loss of $7 million y-o-y, excluding a $9 million gain from a past investment sale.

• Full year 2024: Expect adjusted OR improvement of 150-250 basis points, likely at or above the high end.
• 2025: Expect strong year with continued OR improvement, driven by premium services, local customer growth, linehaul insourcing, and service center openings.
• Linehaul insourcing: On track to meet 2027 target by end of 2024, aiming for below 10% outsourced miles in 2025.

• Macro freight market conditions could impact volume and pricing.
• Competition in the freight transportation industry could affect market share and margins.
• Potential operational challenges in integrating acquired service centers or managing capacity during market upswings.

Q: Ken Hoexter from Bank of America asked about pricing gap and volume trends in October.

A: Mario Harik discussed pricing gap progress and volume normalization.

Q: Scott Group from Wolfe Research asked about pricing upside and 2025 margin outlook.

A: Mario and Kyle Wismans discussed pricing environment and future margin improvement.

Q: Reed Seay from Stephens, Inc. asked about remaining service pain points.

A: Mario Harik discussed ongoing service improvement initiatives.

Q: Fadi Chamoun from BMO Capital Markets asked about 2025 outlook.

A: Mario Harik discussed premium services, local customer growth, and linehaul insourcing.

Q: Chris Wetherbee from Wells Fargo asked about new facilities' profitability.

A: Mario Harik discussed efficiency improvements from new service centers.

Q: Jon Chappell from Evercore ISI asked about revenue per shipment trends.

A: Kyle Wismans discussed remaining pricing opportunities.

Q: Tom Wadewitz from UBS asked about normalized pricing.

A: Mario and Ali Faghri discussed pricing outlook.

Q: Brian Ossenbeck from JPMorgan asked about October volume and customer conversations.

A: Mario Harik discussed volume impact and customer demand trends.

Q: Scott Schneeberger from Oppenheimer & Company asked about premium services and sales force investment.

A: Mario Harik discussed premium services and sales force status.

Q: Bruce Chan from Stifel asked about European business sale.

A: Kyle Wismans and Mario Harik discussed European business strategy.

Q: Ravi Shanker from Morgan Stanley asked about service diminishing returns and Mastio survey.

A: Mario Harik discussed service improvement targets.

Q: Jason Seidl from TD Cowen asked about freight shift to truckload.

A: Mario Harik discussed freight mode conversion.

Q: Stephanie Moore from Jefferies asked about service confidence in upswing.

A: Mario Harik discussed foundational service improvements.

Q: Ari Rosa from Citi asked about industry capacity and peer competition.

A: Mario Harik discussed industry structure and confidence.

Q: Jordan Alliger from Goldman Sachs asked about demand elasticity and November/December tonnage.

A: Ali Faghri discussed pricing elasticity and tonnage outlook.