GXO Logistics was
spun off from XPO Logistics(NYSE:
XPO)in August and a Clipper acquisition would mark first the major deal for since the spinoff. GXO’s global
blue-chip customers include Apple, Nike, Nestlé and Whirlpool, along with high-growth companies in e-commerce and other key sectors, including apparel, technology, food and beverage and consumer electronics.
“This potential acquisition would enhance GXO’s position as a successful pure-play logistics leader," GXO’s Chief Executive Officer Malcolm Wilson said. "
We believe the combination would offer significant value creation for the stakeholders of both companies.”
GXO has received irrevocable undertakings to vote in favor of an offer (and to elect to receive 50 per cent of their consideration in shares) from the he holders of 23.9M Clipper shares, representing about 23% of Clipper’s issued share capital, including from Steve Parkin, Executive Chairman, Tony Mannix, CEO, and David Hodkin, CFO.
Last week, GXO Logistics Non-GAAP EPS of $0.73 beats by $0.20, revenue of $2.26B
beats by $210M.
Now that all sounds very good but what of the the other co?
(XPO). In this case, the company just completed the spin-off of its logistics segment, which is now trading independently as
GXO Logistics(GXO). XPO is now focussing on l
ess-than-truckload ("LTL") transportation and truck brokerage.
While this is a very competitive industry, the company is dominating this space.
The New XPO Logistics
After the GXO spin-off, XPO Logistics is a company focussed on less-than-truckload and truck brokerage.
The company is the third-largest provider of LTL transportation in North America and
the world's second-largest truck broker. The company is also leading in Europe, France, the United Kingdom, Spain, and Portugal.
In LTL, the company
has an 8% market share, which is huge. This industry is highly fragmented and very competitive as a result of the fragmentation and because entry barriers are relatively low. However, while entry barriers are low, surviving and actually becoming a trusted long-term partner of customers is hard. That's why XPO is heavily investing in technology.
Thanks to its 291 terminals in North America, the company covers 99% of all U.S. zip codes and all major economic areas of Canada. Since 2015, the company's LTL
adjusted operating margin has risen from 7% to 17% as a result of technology investments. This includes dynamic routing with real-time digital visibility, automated load-building for higher utilization, data-driven pricing, and analytics to optimize the scheduling of dockworkers and drivers.
In other words, the company optimized all operations that improve total efficiencies. In the end, that's what it's all about. Equipment and labor are very expensive. Companies who are able to generate an edge in improving margins will, eventually, gain long-term market share.
In addition to that, and this is important in the current inflationary environment,
the company has pricing power. In 2015, the company grossed $16.48 per hundredweight (excluding fuel surcharges). This is now $19.03, which implies 2.1% per year. That's more or less in line with pre-pandemic inflation rates.
Moreover, the fact that XPO engages in LTL instead of long-haul
makes it easier to find qualified employees as drivers tend to prefer shorter distances. In the company's 2Q21 earnings call, the word "shortage" was used just once. The company also showed how it operates in a tight labor market, which I think is an incredible bonus in this industry....
