XPO, Inc. Q4 FY2024 earnings call

• World-Class Service: Fourth quarter damage claims ratio improved to 0.2%, a new company record, and on-time performance improved for the 11th consecutive quarter. - Network Investments: Added 25 new service centers, integrated acquired sites, added over 15,000 trailers and nearly 5,000 tractors since 2021, resulting in 30% excess door capacity. - Yield Growth: Full year yield excluding fuel grew 7.8%, with premium services and sales force investments driving above-market yield growth; expect double-digit pricing opportunities ahead. - Cost Efficiency: Reduced linehaul outsourcing to 10.7% of total miles in Q4, aiming for single-digit outsourced miles in 2025, and managed labor costs effectively with proprietary technology.

LTL Segment: In Q4, LTL revenue was down 3% year-over-year, but excluding fuel, it increased by 2%. Adjusted EBITDA for LTL grew by 20% to $280 million, with a $34 million real estate gain in Q4; excluding real estate, it grew to $246 million. Full year LTL revenue contributed to the $8.1 billion company-wide revenue, with yield excluding fuel growing 7.8% and adjusted operating ratio improving by 260 basis points. European Transportation Segment: Adjusted EBITDA was $27 million in Q4, with full-year revenue up 3%, outperforming the industry in a soft macro environment, particularly strong in the UK with double-digit organic revenue growth. Corporate: Corporate adjusted EBITDA was a loss of $4 million in Q4.

For 2025, expect total company gross CapEx of $600 million to $700 million, interest expense $220 million to $230 million, pension income ~$6 million, adjusted effective tax rate 24% to 25%, and diluted share count 120 million shares. LTL OR expected to improve 150 basis points in 2025, with yield expected to accelerate in Q1 2025. European business expected to see EBITDA growth in low single digits on a constant currency basis in 2025.

• Macroeconomic Uncertainty: Impact on freight demand and pricing. - Currency Fluctuations: Affects European business results. - Regulatory Changes: Such as NMSDA changes impacting freight classification and potential customer confusion.

Q: Ken Hoexter on in-sourcing and pricing opportunity A: Mario discussed in-sourcing targets and pricing opportunities with yield improvements, premium services, and local accounts driving margin expansion.

Q: Jon Chappell on yield acceleration A: Ali expected yield to accelerate in Q1 2025, outperforming seasonality, with OR improvement driven by yield and cost initiatives.

Q: Scott Group on margin improvement year-over-year A: Mario and Ali discussed Q1 margin expectations and full-year OR improvement expectations of 150 basis points.

Q: Chris Wetherbee on pricing conversations A: Mario explained pricing driven by mix, incremental services, and service product bridging gap with best-in-class.

Q: Tom Wadewitz on incremental margins and competitive local business A: Kyle and Mario discussed incremental margins above 40% and competitive local business focus on service and sales force.

Q: Jordan Alliger on customer sentiment and tonnage A: Mario and Kyle discussed customer optimism, ISM indicators, and flattish tonnage expectation in 2025.

Q: Brian Ossenbeck on NMSDA changes and real estate A: Mario and Kyle discussed NMSDA impact and real estate gains from service center sales.

Q: Jason Seidl on local customer profitability and mix A: Ali discussed local customer mix growth to 30%+ and profitability.

Q: Unidentified Analyst on cost initiatives A: Mario discussed labor efficiency and in-sourcing initiatives for cost management.

Q: Daniel Imbro on weight per shipment and OR outlook A: Ali clarified weight per shipment seasonality and OR improvement excluding real estate gains.

Q: Eric Morgan on weight per shipment impact on yield A: Ali stated weight per shipment not a swing factor for yield.

Q: Ravi Shanker on CapEx split A: Kyle discussed CapEx split with half to fleet, 40% to land/building.

Q: Joe Hafling on service center ramp A: Mario discussed productivity improvements from new service centers.

Q: Ari Rosa on OR headwinds A: Mario discussed service center execution as a tailwind and macro impact on OR.

Q: Bruce Chan on local market growth A: Mario discussed local accounts as sticky, lower volume, relationship-driven customers.

Q: Jeffrey Kauffman on currency impact A: Ali discussed FX impact on European business, both revenue and operating income