XPO Logistics Inc. said yesterday it would achieve $300 million in total cost savings during 2017 and 2018 by identifying pockets of inefficiencies beyond what it planned to extract from the former Con-way Inc., which XPO acquired last fall for $3 billion.
At the time of the acquisition—which is the largest in the trucking industry's history—Greenwich, Conn.-based XPO said it would boost Con-way's annualized profits by between $170 million and $210 million over a two-year period through synergies and operational improvements. Since then, however, it has uncovered millions of dollars in additional savings, partly through more efficient procurement activities, according to Scott B. Malat, XPO's chief strategy officer.
Malat said the projected $300 million in savings do not include what XPO expects to pull out of the former Con-way in 2016. Much of the additional savings will come from other parts of the XPO organization, Malat said.
In an interview yesterday, Malat affirmed XPO's projections that it will generate between $100 million and $150 million in free cash flow during 2016. It also expects to report $1.25 billion in 2016 earnings before interest, taxes, depreciation, and amortization (EBITDA) on approximately $15 billion in revenue, which translates into an 8.3 percent operating margin. XPO has projected a 10.3 percent EBITDA margin by 2018, a figure that assumes annual organic revenue growth in the mid single-digit range.
In February, XPO Chairman and CEO Bradley S. Jacobs said the company planned to 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. Jacobs said at the time that XPO had 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 its parent. The former Con-Way Freight generated about $3.3 billion of the $5.8 billion in overall revenue at the time of the XPO acquisition. Some of those contracts had not been rebid since 2009, Jacobs said then.
Jacobs told analysts in early May that XPO has saved "tens of millions of dollars" through the rebidding process because line-haul rates had declined significantly over the past few years. "It is a good time to be bidding freight," Jacobs said at the time. XPO retained most of the old Con-way's carrier partners, he said.