XPO Logistics, Inc. Q4 FY2025 earnings call

• Company-wide, strong execution with fourth-quarter adjusted EBITDA of $312 million and adjusted diluted EPS of $0.88. Excluding real estate gains, adjusted EBITDA up 11% and adjusted EPS up 18% y/y.
• North American LTL generated adjusted operating income of $181 million, up 14% y/y, with adjusted operating ratio improved by 180 basis points. LTL margin expanded 590 basis points since 2022.
• Focus on customer service: 2025 saw reduced damages and improved service quality, translating to better commercial outcomes, higher prices, and market share gain.
• Pricing: 2025 saw 6% yield growth excluding fuel, third consecutive year of revenue per shipment improvement. Expansion with local customers and premium services driving above-market pricing growth.
• Cost efficiency: Productivity improved ~1.5 points in 2025, with AI-driven route optimization tools pilot successful, expanding to nearly half of service centers, expected to reduce miles and improve stops per hour. Lowest level of outsourced miles in history at 5.1% of total miles.

For the LTL segment, adjusted operating income was $181 million, up 14% from the prior year, and it contributed $285 million to adjusted EBITDA. The European segment had adjusted EBITDA of $32 million, while corporate had an adjusted EBITDA loss of $4 million. Company-wide, fourth-quarter adjusted EBITDA was $312 million and adjusted diluted EPS was $0.88. Excluding real estate gains, adjusted EBITDA increased 11% and adjusted EPS increased 18% year over year.

• Expect to meaningfully increase free cash flow generation in 2026 and beyond, enabling acceleration of share repurchases and debt pay down.
• 2026 planning assumptions: Total company gross capital expenditures $500M-$600M, interest expense $205M-$215M, pension income ~$14M, adjusted effective tax rate 24%-25%, diluted share count ~118 million shares.
• Expect another strong year for margin improvement and earnings growth in 2026, with 100-150 basis points of OR improvement without significant macro recovery.

Q: Ken Hoexter asked about January tonnage outperformance and OR outlook.

A: Mario Harik said January tonnage was flat y/y, shipments up ~1 point, outperformance vs season trend due to company-specific initiatives and early signs of industrial strength. Expected OR to improve sequentially from Q4 to Q1, outperforming normal seasonality.

Q: Scott Group asked about LTL margin improvement thoughts and local penetration update.

A: Mario Harik said expect 100-150 basis points of OR improvement in 2026, driven by above-market yield growth and cost efficiencies from AI. Local accounts at 25% of book, goal to reach 30% over 5 years.

Q: Fadi Chamoun asked about cost efficiency productivity targets and volume performance.

A: Mario Harik said volume outperformance in January was combo of company initiatives and early industrial signs. Tech and AI expected to drive ~1.5 points productivity improvement in 2025, with upside to mid-single digits in 2026.

Q: Jonathan Chappell asked about revenue per shipment deceleration.

A: Ali-Ahmad Faghri said expect mid-single-digit revenue per shipment growth in 2026, driven by local customers and premium services expansion.

Q: Jordan Alliger asked about LTL industry capacity and price reaction.

A: Mario Harik said industry capacity down vs pre-COVID, when demand recovers, limited capacity will lead to pricing growth, and XPO has 30% excess door capacity to support recovery.

Q: Stephanie Moore asked about incremental margins in upcycle.

A: Kyle Wismans said expect comfortably above 40% incremental margins, driven by yield, local shipments, and structural cost improvements.

Q: Chris Wetherbee asked about tonnage assumptions and CapEx/cash flow.

A: Ali-Ahmad Faghri said Q1 tonnage expected flat y/y, underpinning OR outlook. Kyle Wismans said CapEx to moderate, free cash flow to increase, enabling share repurchases and debt pay down.

Q: Richa Harnain asked about Q1 margin expansion assumptions and pricing in upcycle.

A: Ali-Ahmad Faghri said Q1 tonnage flat y/y, March key for quarter. Mario Harik said in upcycle, pricing to increase, XPO has double-digit pricing opportunity, and 15-20% excess capacity to handle volume.

Q: Tom Wadewitz asked about underlying inflation and productivity.

A: Kyle Wismans said cost per shipment expected low single-digit, offset by productivity initiatives from AI and labor productivity.

Q: Brian Ossenbeck asked about vertical expansion and truckload spillover.

A: Mario Harik said grocery and healthcare verticals to grow, truckload spillover expected as truckload rates rise, but small percentage.

Q: Jason Seidl asked about long-term OR targets.

A: Mario Harik said expect OR to get into low seventies over time, driven by pricing, accessorial, and small to medium-sized customer initiatives, plus AI productivity.

Q: Ravi Shanker asked about local account competition and cyclicality.

A: Mario Harik said local accounts are ~30% of industry, smaller customers with higher margin, sales force increased 25%, seasonal impact on weight per shipment vs larger customers.