XPO, Inc. Q1 FY2025 earnings call

• LTL segment maintained momentum through year end, outperforming the industry with sequential margin improvement better than normal seasonality. Delivered damage claims ratio of 0.3% (record low) and 12th straight quarter of year-over-year on-time performance improvement. Opened service centers to reduce rehandles and transit miles, achieving 30% excess door capacity. Added over 5,000 tractors and 16,000 trailers since 2021, with average tractor age at 4 years. - Pricing: Yield excluding fuel grew 6.9% year-over-year in Q1, with local customers and premium services becoming more meaningful in revenue mix. - Cost efficiency: Lowered purchase transportation cost by 53% Y/Y, reduced outsourced linehaul miles to 8.8% of total miles (best in company history). Improved labor productivity using proprietary technology. - AI use: Investing in proprietary AI technology for linehaul optimization, labor planning, and pickup and delivery, with pilots already delivering higher load averages and transit efficiencies.

Total company revenue was $2 billion. LTL segment revenue was down 4% year-over-year and up 1% sequentially. Excluding fuel, LTL revenue was down 2% year-over-year and up 1% sequentially. LTL adjusted EBITDA was $250 million, down 2%. European transportation segment had adjusted EBITDA of $32 million. Corporate segment had a loss of $4 million. LTL segment maintained momentum, with sequential margin improvement better than normal seasonality, and has improved adjusted operating ratio by 370 basis points over two years.

• Expect to deliver 150 basis points of margin improvement for full year, even with full-year tonnage negative on a year-over-year basis. - Q2 expected to have strong margin performance, outperforming typical seasonality with continued strength in yield and effective cost management. - If macro softens and tonnage down mid-single digits, still expect about 100 basis points of margin improvement for full year.

• Macro environment uncertainties, including impact of tariffs on demand. - Competition from other carriers like UPS and Amazon potentially entering the LTL space, though not seen as material threats currently. - Uncertainty in volume trends due to sub-seasonal demand patterns and industrial sector dynamics.

Q: Jon Chappell asked about full year guide update and Q2 margin outlook.

A: Mario Harik said expect 150 basis points of full year margin improvement even with tonnage down, Q2 expected to be at or above high end of 250-300 basis points sequential OR improvement range.

Q: Jon Chappell followed up on excess door capacity and cost levers.

A: Mario Harik said real estate capacity is low cost, will onboard profitable freight, flex labor and use technology to manage costs.

Q: Fadi Chamoun asked about volume story and share loss to other modes.

A: Mario Harik said volume decline driven by underlying demand softness in industrial sector, not much direct conversion from LTL to truckload.

Q: Ken Hoexter asked about pricing in local SMB side and volume outlook.

A: Mario Harik talked about progress in local SMB segment with sales force growth and tonnage acceleration, Ali Faghri discussed volume trend improvement and easier comps in second half.

Q: Scott Group asked about local revenue percentage and margin premium.

A: Mario Harik said local revenue is in low to mid 20% range, margin differential with larger accounts consistent.

Q: Chris Wetherbee asked about tariff impact on volume outlook.

A: Mario Harik said tough to predict, customers are cautious, industrials slightly outperformed retail in Q1 and April.

Q: Jason Seidl asked about pricing contractual nuance and threat from UPS/Amazon.

A: Kyle Wismans talked about strong renewals and Mario Harik said UPS and Amazon not material threats.

Q: Jordan Alliger asked about why shippers agree to price increases.

A: Mario Harik said due to quality of service, better service allowing higher pricing.

Q: Brian Ossenbeck asked about back half yield outlook.

A: Kyle Wismans said expect strong pricing environment and above market yield growth.

Q: Stephanie Moore asked about new facilities progress.

A: Ali Faghri said new facilities performing well, accretive to OR.

Q: Ravi Shanker asked about CapEx and AI crystal ball.

A: Kyle Wismans talked about CapEx moderation, Mario Harik explained AI demand forecasting model.

Q: Scott Schneeberger asked about stress testing on down tonnage and Europe sales pipeline.

A: Kyle Wismans said can perform well with down tonnage, Ali Faghri said Europe business performing well with sales pipeline up.