XPO Logistics will focus on trucking only, split off, sell other units

XPO Logistics will focus on trucking only, split off, sell other units

XPO Logistics

Source: XPO Logistics

XPO Logistics announced after the closing bell on Tuesday that it would become a trucking-only business, turning its high-tech truck brokerage business into a separate publicly traded company.

“It’s a big company becoming two big companies.” XPO Chairman and CEO Brad Jacobs told CNBC. “There is a large universe of investors who want to invest in pure-play like LTL [less-than-truckload trucking] which is based on assets with a high return on capital and which builds on the ongoing industrial recovery.”

He added: “There is also a distinct universe of investors who want to invest in a technology-based, low-cap truck brokerage platform that the spin-off will be.”

The remaining trucking business will retain current management, including Jacobs, the XPO symbol and corporate headquarters in Greenwich, Connecticut. XPO will focus solely on LTL, where the company makes 33% of its revenue.

LTL trucking, which allows multiple customers to ship goods in the same truck, has become increasingly in demand during the global supply chain disruption caused by the Covid pandemic, as full truckload capacity is become more expensive and difficult to find for businesses.

“We have managed the LTL business very well. We have generated more than $3 billion in net cash and improved the margin by 910 basis points since we bought the business. It will be even more focused after the rotation” , said Jacobs.

The truck brokerage business – which includes last mile delivery, freight forwarding and managed transportation – is expected to begin operating under a new name by the end of 2022. It will have a separate management team, headquartered in Charlotte, North Carolina.

XPO also has an agreement with a potential buyer for its intermodal business that ships containers. If that deal is not completed by March 18, XPO said the container shipping business would be included in the spin-off.

The company will divest its European operations, which include both trucking, truck brokerage and other services, either through a sale or listing on a European stock exchange.

Tuesday’s announcement departs from XPO’s 2011-2015 growth strategy, which included the 2015 acquisition of LTL trucker Con-Way for $3 billion.

In March 2021, XPO announced that it would spin off its contract logistics business into a separate, publicly traded company called GXO. These shares began trading on August 2. Including a nice rise in regular trading on Tuesday, GXO has gained around 17% since then, compared to the S&P 500’s decline of nearly 4% over the same period.

“We’ve learned from the GXO rotation that when a leadership team does one thing, they’re more focused and adept at driving growth,” Jacobs said. “We’ve also learned that by creating a pure-play industry leader, you become easier for investors to understand and weed out.”

XPO is the third largest LTL carrier in the United States by revenue. Customers include Caterpillar and Tractor Supply. XPO’s North American LTL business reported revenue of over $4.1 billion in 2021, growing 16% year-over-year.

The share price and number of shares of the new LTL company that current XPO shareholders will receive are still being decided. XPO retained Goldman Sachs, Morgan Stanley and BofA Securities to help with the split.