XPO to rationalize $3 billion in global spend during 2016, CEO says

Transportation and logistics provider XPO Logistics Inc. will rationalize about $3 billion in enterprisewide spending in 2016 by renegotiating legacy line-haul contracts and leveraging its burgeoning size to enhance its buying power, the company's chairman and CEO said yesterday.

Bradley S. Jacobs said XPO has already put out bids on about $500 million in line-haul business handled by outside carriers on behalf of the former Con-way Freight, the less-than-truckload (LTL) unit that XPO absorbed when it bought parent Con-way Inc. last September for $3 billion. Some of those contracts had not been rebid since 2009, Jacobs said.

Jacobs added that Greenwich, Conn.-based XPO is re-evaluating $600 million in global spending, with much of that coming from Europe, where the company is a major player following its April 2015 acquisition of French logistics giant Norbert Dentressangle S.A. for $3.5 billion. Purchases under rebid run the gamut from trucks to lift-truck equipment to office supplies, Jacobs said in a phone interview last night.

Later this year, XPO will rationalize $1.9 billion in global spending, a project that will be executed in two intervals, Jacobs said. Included in the spending reset will be a portion of the $3 billion in transportation services purchased by XPO each year, Jacobs said. XPO's freight brokerage unit procures transport capacity for thousands of customers.

In the interview, Jacobs said XPO should benefit from a subpar macroenvironment to obtain attractive pricing for the products and services it needs. The increased clout that comes with being a $15-billion-a-year company should also prove a tailwind for its procurement activities, he added.

Jacobs' comments came as XPO released its fourth-quarter and full-year 2015 results after the close of the markets. Fourth-quarter gross revenue for its transportation operations hit $2.1 billion, up 216.8 percent from the year-earlier quarter. Fourth-quarter gross revenue for the logistics division came in at $1.1 billion, up from $166 million in the prior year.

The outsized year-over-year gains were skewed by the acquisitions of Dentressangle and Con-way, as well as drayage company Bridge Terminal Transport and last-mile-delivery provider UX Specialized Logistics. Jacobs noted, however, that year-over-year "organic" revenue, which excludes the impact of the revenue from the four 2015 acquisitions, rose 8.4 percent, while organic earnings before interest, taxes, depreciation, and amortization (EBITDA)—which Jacobs said is the best way to measure XPO's day-to-day performance because it factors out noncash, one-time charges related to acquisitions—increased 33 percent. Jacobs said the strong organic results demonstrate growing customer demand for XPO's service portfolio, which he has been assembling since 2011.

Jacobs yesterday reaffirmed that the company has no plans for any major acquisitions this year, and is instead focusing on integrating Con-way and on strengthening its service capabilities.

John G. Larkin, analyst for investment firm Stifel, said the results represent the "most vanilla earnings report" XPO has yet released, due to the absence of any large-scale acquisition. As a result, analysts and investors will focus on "progress updates from existing operations versus the more hypothetical questions" surrounding potential acquisitions, Larkin wrote in a note last night.

Larkin said XPO is a year or two away from "settling in to a more mature and developed state" where earnings estimates will reflect actual operating performance and not the impact of acquisition-related expenses in a given quarter.