3 Takeaways From XPO Logistics Inc (NYSE:XPO) Q2 Earnings & Conference Call

- August 2, 2017

XPO Logistics Inc (NYSE:XPO) is preparing to make some very transformative moves, potentially spending $8 billion on acquisitions to build a worldwide presence. We have said on numerous occasions that XPO Logistics would be wise to build on its market leading presence in last mile. This is the business that deals largely with e-commerce (i.e. Amazon) and the delivery of large items. While XPO is the leader in last mile, there is room to grow significantly larger in the fast-growing business.

Apparently, Jacobs agrees with the need to grow in last mile. Jacobs said he plans to double his last mile delivery hubs. Eventually, Jacobs aims to be within 75 miles of 80% of the U.S. population and within 120 miles of 90% of the population by the end of 2018. That will make XPO Logistics services extremely attractive for the likes of Amazon, eBay, and other retailers who do a lot of last mile deliveries like Best Buy and Wal-Mart.

With double digit growth, XPO’s last mile business is its fastest growing unit, and is becoming more meaningful to the company’s overall business each and every quarter. The second quarter was no exception, and I was very pleased to hear that Jacobs is ready to take a bigger bet in this space.

For those who don’t know, last mile is the company’s highest margin business, by far.

Not all acquisitions are created equal

As seen below, XPO Logistics’ past acquisition in freight brokerage, and last mile above, continue to pay dividends.

The business had double digit growth, and is mostly a combination of past acquisitions.

XPO Logistics has been acquisitive in the past, but its current growth over the last few quarters has been organic. The company has been very quiet in M&A.

XPO’s acquisitions in freight brokerage, last mile, and less than truckload (Con-Way) have all done very well. However, Europe hasn’t been nearly as strong. XPO Logistics’ less than truckload and full truckload businesses are now operating at a year-over-year loss.

Collectively, XPO Logistics (NYSE:XPO) is still doing very well and the second quarter was promising. However, my biggest takeaway is that this quarter was the beginning of what Bradley Jacobs promises to be a very active, and exciting era to come. As previously discussed, $8 billion in acquisitions has great implications for XPO stock owners and will completely transform XPO Logistics Inc (NYSE:XPO). Over the long haul, XPO Logistics stock is just as appealing as it has ever been. However, XPO stock could be volatile during the acquisition and transition periods, which we previously discussed in the linked article above.

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