XPO’s LTL freight operations have much in common with airlines. (Photo: Jim Allen/FreightWaves)
XPO Logistics Inc. said late Tuesday it will spin off its North American truck brokerage business and related businesses and divest its European operations, moves that will transform the company into an LTL freight services provider on the continent.
XPO (NYSE: XPO) also disclosed that it is in advanced talks with an unspecified party to sell its North American intermodal and trucking operations, which generated about $1.2 billion in revenue last year and operates 44 locations in North America. The sale of the intermodal business, if it happens, is expected to close within the next three to four weeks, according to people familiar with the situation. If the deal falls through, the business would be rolled into a subsidiary, which is expected to close in the fourth quarter of 2022.
XPO said its last-mile transportation, freight and management businesses will be incorporated into the subsidiary. The combined segments generated $4.8 billion in revenue in 2021.
The company is considering selling or listing its European business, which generated about $3.1 billion in revenue in 2021. Most of XPO’s European business came from the transportation arm of the former Norbert Dentressangle SA, the French transportation and logistics company that XPO acquired in 2021 for $3.5 billion. Dentressangle’s European logistics business eventually became GXO Logistics Inc. (NYSE: GXO), which XPO spun off last August.
If the multiple transactions go according to plan, XPO will have streamlined its business to the point where it could become a standalone LTL carrier. Brad Jacobs, XPO’s chairman and CEO, has for years sought to elevate XPO’s valuation to the levels enjoyed by Old Dominion Freight Line Inc. (NASDAQ: ODFL) and Saia Inc. (NASDAQ: SAIA), both of which are essentially pure-play providers that have outperformed XPO. For example, XPO’s LTL operating ratio, or the ratio of expenses to revenue, was expected to reach 86.3% in the first quarter, an improvement from the previous quarter. By contrast, Old Dominion achieved an operating ratio of 73.4% in the fourth quarter, levels unheard of for an LTL carrier.
Prior to the GXO spinoff, Jacobs alleged that XPO had long been penalized with a “conglomerate discount” because analysts and investors had difficulty valuing its many moving parts. After the GXO spinoff, attention turned to the possibility that XPO might sell or spin off its non-LTL assets to simplify its value proposition to Wall Street.
The company said the combined price of the two companies’ trading should exceed what XPO shares would trade at if the operations remained combined. XPO shares jumped about 9% in after-hours trading after rising 2.7% in regular trading. Shares, which were trading at about $90 at the time of the GXO spinoff, have fallen to about $60 a share in recent weeks.
Brokerage has performed strongly in recent quarters, leveraging favorable macroeconomic conditions and strong technology to drive high levels of profitability. The segment reported a 36% year-over-year increase in gross revenue in the fourth quarter to $846 million. Net revenue, defined as gross revenue minus the cost of transportation and services, increased 10% to $128 million. Brokerage generated $4.8 billion in revenue in 2021, $700 million more than the LTL segment.
The LTL business generated $618 million in operating income and $904 million in adjusted EBITDA. XPO expects its LTL business to reach $1 billion in adjusted EBITDA this year. In an announcement Tuesday, XPO confirmed the first-quarter and full-year guidance it gave a month ago.
The new company will be based in Charlotte, North Carolina, where XPO already has a large presence.
