XPO Logistics, Inc. Q2 FY2025 earnings call

• Customer service: Achieved year-over-year improvement in damage frequency (0.3% damage claims ratio) and 13th straight quarter of on-time performance improvement. - Network expansion: Since 2021, added nearly 6,000 tractors and over 17,000 trailers, with average tractor age <4 years. Opened large LTL service centers in Carlisle, PA and Greensboro, NC, achieving 30% excess door capacity. - Pricing: Delivered above-market yield growth (6.1% y-o-y ex fuel), with local accounts and premium services contributing to mix and higher margins. Grocery consolidation service expected to ramp. - Cost efficiency: Labor productivity improved via proprietary platform, reducing labor hours per shipment. Linehaul outsourced miles reduced to 6.8% of total, saving 53% y-o-y in purchase transportation expense. AI-powered linehaul models driving savings in miles and diversions. - Technology: Piloting AI for trailer/route assignments and P&D operations, showing positive trends in stops per hour and trailer utilization.

XPO reported total revenue of $2.1 billion. The North American LTL business generated revenue with LTL revenue down 3% y-o-y excluding fuel, but up 6% sequentially. Adjusted EBITDA for North American LTL was $300 million, growing 1% y-o-y and expanding margin to 24.2%. European Transportation segment had adjusted EBITDA of $44 million, while the Corporate segment had a $4 million loss. LTL revenue excluding fuel was down 1% y-o-y but up 6% sequentially. Purchase transportation expense for LTL was reduced by 53% y-o-y, saving $36 million, and labor costs were held flat through productivity improvements. Equipment maintenance cost per mile improved 6% due to newer tractors.

• Q3 OR outlook: Expect Q3 OR to be flattish q-o-q compared to Q2, with full-year OR expected to improve by 100 basis points. - Grocery consolidation: Estimated $1 billion market size, currently underrepresented, with early success in Q2 and ramp expected in back half. - Linehaul in-sourcing: Expect to continue reducing outsourced linehaul miles to mid-single-digit range, with AI capabilities and new break bulk locations driving further cost improvements and margin expansion. - European performance: Anticipate EBITDA in European segment to outperform seasonality in Q3 despite normal sequential step-down.

• Macroeconomic uncertainty: Impact on weight per shipment for small- to medium-sized customers, though transitory. - Industry competition: Potential impact from FedEx Freight separation, though overall seen as positive for industry focus on margin expansion. - Volume fluctuations: Continued soft freight market could affect tonnage and revenue if not offset by yield and cost levers.

Q: Color on Q3 OR and grocery opportunity?

A: Mario expects Q3 OR to be flattish q-o-q, with full-year OR improvement of 100 basis points. Grocery consolidation is a $1B market, underrepresented, with early success in Q2 and ramp in back half.

Q: Europe performance and linehaul limits?

A: Ali notes Europe had strong Q2 EBITDA growth, with U.K. and Central Europe growing. Mario says linehaul in-sourcing at 6.8% will continue to decline, with AI and new break bulk locations driving cost improvements.

Q: Muted freight market impact on customer conversation?

A: Mario says yield performance has a long runway, with 15 points gap to bridge, including service, premium services, and local channel growth.

Q: Q3 yield and local channel growth?

A: Kyle expects Q3 yield ex fuel to improve sequentially, with local channel growth from 20% to 30% share driving continued yield growth.

Q: Labor productivity and grocery competitive dynamics?

A: Kyle says labor productivity is improving via tech, with grocery being a consolidated business where XPO's service improvements are gaining traction. Mario mentions multiple premium services in pipeline with long runway.