XPO’s Jacobs: It’s meat and potatoes time

[kscarbel2]

Fleet Owner / November 5, 2015

After completing 16 acquisitions in four years, global logistics provider plans to focus on “sales, sales, sales” and generating “efficiencies at every level.”

Digesting and integrating its now-finalized $3 billion acquisition of Con-way Inc. and its subsidiaries, along with growing revenues, margins, and slicing costs will occupy the management team at XPO Logistics for the foreseeable future, noted Bradley “Brad” Jacobs, the company’s chairman and CEO, in global firm’s third quarter conference call.

“This is pure meat and potatoes execution; Sales, sales, sales plus efficiency at every level,” Jacobs explained to reporters on the call. “We’re jumping in like our hair is on fire. Our focus now it to make it all hum as one coherent global organization. Acquisition is not our focus.”

He noted that XPO has already cut $30 million of excess costs on an annualized basis from the former Con-way’s structure through headcount reductions and vendor contract re-negotiations and believes that effort indicates XPO remains “on target” to save between $170 million and $200 million in costs over the next two years from its Con-way acquisition.

“We’re not impervious to the economy; we certainly depend on GDP [gross domestic product] growth, industrial manufacturing growth, and retail sales,” he said. “We’re very much part of the global economy – no question about that.”

But there are “many things” XPO is doing now and planning to do that, regardless of how economy fares, will improve the cost structure of our company, Jacobs emphasized.

“There is a huge opportunity to chip away at billions of costs – trucks, trailers, tires, fuel, office supplies, $500 million in temporary labor, IT [information technology] services, etc.,” Jacobs stressed. “There are many, many categories where we can save substantial money.”

He also believes another “huge opportunity” is in the making to cross-sell XPO’s now vastly-expanded range of services to current customers as well as prospective ones – both in the U.S. and overseas.

“That’s the beauty of our multi-mode model now: we’re completely ‘mode agnostic.’ If intermodal works better for our customers, fine, we’ll do that. If trucks work better, fine, we’ll do that,” Jacobs said.

He added, though, that XPO is now also refocusing more tightly on building both margins and profits across all of its business lines.

“We’re not a non-profit business; we are in the profit business,” Jacobs pointed out. “So we’re going to them [XPO’s more than 50,000 customers] and have discussions on pricing. We’re not in business to lose money; that should not be in our vocabulary.”

That philosophy is going to drive a multitude of efforts at the former Con-way units, he emphasized:

- Purging unattractive freight or charging for it appropriately.

- Grow with more small- and medium-sized customers.

- Look at rates lane by lane, customer by customer, and optimizing them; raising or lowering them as applicable.

- Not casually waiving accessorial fees, such as for excess length shipments, liftgate-required deliveries, and residential deliveries.

- Generating more cross docking efficiencies, with freight dimensioning technology installed at cross docking facilities.

- Decreasing XPO’s linehaul costs by bringing more freight onto its own trucks.

- Continuing to rationalize IT and back office costs

- Cross-selling TL, LTL, intermodal and logistics services across XPO’s customer base.

“I could keep going on for hours but those are main things off top of my head,” Jacobs noted.

XPO also plans to use the monies generated via revenue growth and costs savings to pay down its debts, which stands at $5.8 billion, largely from the Con-way acquisition.

“We’ll pay down debt with free cash and improve the leverage of the company,” Jacobs said.

Other items presented during XPO’s earnings call include:

- XPO generated total gross revenue for the third quarter increased 256.5% year-over-year to $2.4 billion, and net revenue increased 542.4% to $1.1 billion.

- The company posted a net loss of $35.4 million for the quarter, compared with a net loss of $11.6 million for the same period in 2014.

- Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved to $166.1 million for the third quarter, compared with $24.2 million for the same period in 2014.

- As of November 3, XPO said it has approximately $530 million of cash on hand, with an as-yet untapped $1 billion asset-backed line of credit waiting in the wings.

- XPO named industry veteran Tony Brooks as president of XPO’s North American LTL business.

- Jacobs views previous union-organizing efforts against Con-way and XPO by the International Brotherhood of Teamsters as a “nuisance and distraction.” XPO’s employee base, he said, is “happy and not interested in an intermediary,” he added. “We don’t view the union as serious threat.”

- He noted that since the Con-way acquisition, a “couple of LTL carriers” have backed out of commitments to XPO’s brokerage operation – a move Jacobs considers “petty.” He said XPO “deals with our 3PL competitors all the time. Sometimes we use their capacity and they use ours. So there is no reason in the world we can’t figure out to do business in an ethical, fair, and reasonable way to make money for both parties going forward.”

[Green Dash]

- Purging unattractive freight or charging for it appropriately.

- Grow with more small- and medium-sized customers.

- Look at rates lane by lane, customer by customer, and optimizing them; raising or lowering them as applicable.

- Not casually waiving accessorial fees, such as for excess length shipments, liftgate-required deliveries, and residential deliveries.

- Generating more cross docking efficiencies, with freight dimensioning technology installed at cross docking facilities.

- Decreasing XPO’s linehaul costs by bringing more freight onto its own trucks.

- Continuing to rationalize IT and back office costs

- Cross-selling TL, LTL, intermodal and logistics services across XPO’s customer base.

I don't see any earth shattering innovations there. All or most of these services are currently offered (and issues addressed) by their competitors in LTL market. Con Way was not a poorly run company, either. I'm interested in seeing how this will pan out for the former Con Way Freight and it's employees.