XPO rolls out plan to spin-off LTL and brokerage businesses into two separate companies

Taking further steps to “unlock value” for its stakeholders, Greenwich, Conn.-based truckload and less-than-truckload (LTL) services provider XPO Logistics said yesterday it plans to spin off its North American truck brokerage from its less-than-truckload business, as well as its related asset-light businesses. What’s more, XPO also announced it plans to divest its XPO Europe business and is also in exclusive negotiations with a buyer for the sale of its North American intermodal business.

Upon the completion of these initiatives, which are expected to be done by the fourth quarter of this year, XPO officials said that it will create two focused, publicly-traded companies at the top of their industries.

“我们的北美less-th的两个核心业务an-truckload and tech-enabled truck brokerage are industry-leading platforms in their own right, each with a distinct operating model and a high return on invested capital,” said Brad Jacobs, chairman and chief executive officer of XPO Logistics, in a statement. “We believe that by separating these businesses through a spin-off, we can significantly enhance value creation for our customers, employees and shareholders, as we did with oursuccessful spin-off of GXO last year.”

XPO said that the spin-off would represent a leading platform for North American tech-enabled truck brokerage services, citing its history of industry-best revenue and margin growth, a highly-efficient freight marketplace and access to a large amount of truckload capacity, in addition to its asset-light services, including last-mile logistics, managed transportation, and global forwarding.

On the LTL side, XPO said the when the spin-off is official it will be a “pure play LTL industry leader” and the third largest provider of domestic and cross-border LTL freight shipping, with a competitively advantaged network of transportation assets managed by proprietary technology.

XPO said that the corporate headquarters for its truck brokerage and asset-light services and LTL business will be in Charlotte, N.C. and Greenwich, Conn., respectively.

As for the divestiture of its European business, XPO said it will be done through a sale or a listing on a European stock exchange. And, for its North American intermodal business[XPO acquired this business through its acquisition of Pacer], which is comprised of rail brokerage and drayage services, XPO said it is “under an exclusivity contract in connection with a potential sale of its intermodal business.”

An XPO spokesperson toldLMthat these moves will transition one great company into two great companies.

“我们从GXO旋转,当你有companies that are more focused and fit for purpose with a management team doing one thing, you can drive outsized growth,” she said. “There's a large universe of investors who want to invest in a pure-play like the third-largest LTL provider in North America that's asset-based with a high return on capital and levered to the industrial recovery. We’ve managed the business very well, generating over $3 billion in cash since we bought the business, and it’s going to be even more focused post-spin, with significant upside potential. There's also a separate and distinct universe of investors who want to invest in an asset-light, tech-enabled truck brokerage platform that the spin-off will be. Our best-in-class truck brokerage business has first-mover tech advantage and grew at three times the rate of the industry from 2013 to 2021.”

Evan Armstrong, president of Milwaukee-based supply chain consultancy Armstrong & Associates, toldLMthat XPO finally making its LTL carrier operations a standalone company should have been done right after itsacquisition of Con-way in 2015, saying there were very few synergies between a traditional LTL carrier and the 3PL operations, whereas this move makes sense.

But, from a 3PL perspective, he said that the company’s strategy is does not make sense, for a few different reasons.

“With the carve out of GXO and now the breakup of its transportation management operations and severance of intermodal rail services, it looks like XPO is trying to increase its competition from smaller third-party logistics providers (3PLs) with less-integrated service offerings,” he said. “While shippers are trying to reduce the number of 3PLs they work with globally, XPO’s strategy continues to be counterintuitive. This new siloed approach limits XPO’s ability to cross-sell services and compete with leading 3PLs having extensive service offerings, and opens it up to increased competition from the larger number of 3PLs playing in individual market segments.”

Fourth quarter 2021 earnings for XPO impressed, with the company reporting that quarterly revenue—at $3.4 billion—increased 14% annually and was up 30% compared to 2010, representing the fourth straight quarter XPO’s revenue has set a new record, topping Wall Street estimates, of $3.269 billion. Adjusted earnings per share also set a new company record, at $1.34, and adjusted EBITDA, at $323 million, represented its highest fourth quarter level in company history, while posting a 15% annual gain, beating analysts’ estimates of $302 million, and setting a quarterly EBITDA record for the sixth quarter in a row. Full-year 2022 EBITDA guidance issued by XPO now stands at $1.36 billion-to-$1.4 billion.