The chairman and CEO of transport and logistics giant XPO Logistics Inc. said late yesterday the company does not plan to be on the acquisition trail in 2017, saying it spends no time exploring possible acquisitions and does not have a mergers and acquisitions team in place.
Bradley S. Jacobs said in a phone interview that XPO remains focused on maximizing the value generated by the 17 acquisitions made since 2011. In fact, the absence of M&A activity has supplied a tailwind to Greenwich, Conn.-based XPO's free cash flow, which had been constrained in prior years due to one-time acquisition costs and the front-end expense of building out the company's physical and IT infrastructure, Jacobs said.
In 2017 and 2018, XPO expects free cash flow, calculated as operating cash flow minus capital expenditures, to total $900 million, with about $350 million of that expected this year. It generated $210 million in free cash last year.
Jacobs said XPO will grow its free cash flow at a faster rate than its expansion of earnings before interest, taxes, depreciation, and amortization, known more commonly by the acronym EBITDA. Jacobs said the company expects a 10-percent EBITDA margin in 2018, which would be a 2-percentage-point improvement over 2016 levels.
Jacobs' comments came as XPO reported its fourth-quarter and full-year 2016 results, with fourth-quarter revenue up 10 percent, to $3.68 billion, and a net income of $27.3 million, compared to a net loss of $62.8 million in the same period in 2015 For the year, revenue hit $14.6 billion, up 91.8 percent from 2015. Net income was $63.1 million versus a net loss of $245.9 million in 2015. The 2016 tally was heavily skewed by full-year results from the former Con-way Inc., the transport and logistics provider, and the former Norbert Dentressangle, the French trucking and logistics concern. XPO acquired both companies during 2015 for a combined $6.5 billion.
XPO said gains were driven by strong performances in its North American less-than-truckload (LTL) unit, with fourth-quarter operating income of $84 million versus an operating loss of $6.1 million in 2015's fourth quarter, and by its European logistics operation, which landed a number of e-commerce and cold-chain contracts in the quarter. The organic growth in Europe was somewhat negated by the impact of unfavorable foreign exchange rates, the company said. Jacobs said the outlook for the European economy is brightening, though the company's transport operations there were not star performers, due in part to lackluster pricing trends for trucking services.
XPO's next significant move is expected to be the formal springtime launch of an integrated supply chain-LTL-last mile delivery service. The program has unofficially begun with a small group of customers. XPO has a strong last-mile operation from its 2013 acquisition of 3PD Inc., a Marietta, Ga.-based provider considered one of the leaders in the specialized and fast-growing segment, as well as from subsequent smaller acquisitions of last-mile vendors.