The GXO Story Begins to Take Shape

When you are a trailblazer, it can be difficult to quantify success. But for GXO Logistics, its first quarter earnings as a standalone company represented a good first step.

But it is just that, a first step.

"There is category creation taking place. There is nothing like this in the market today," Mark Manduca, chief investment officer for GXO, told Modern Shipper following the Q3 announcement on Nov. 1, before rattling off what GXO is trying to accomplish. He cited a business with technology at the forefront – 30% of GXO warehouses are technology enabled currently, far above the single-digit estimates of overall warehouses – and one that has a strong balance sheet all balanced by executives with expertise in the e-commerce and warehousing space. "You put all those things together, you get GXO. If you want to own all these things … I think we are the only show in town as far as the stock market [is concerned]."

GXO GXO, which was part of XPO XPO until August, announced 56 cents in third-quarter adjusted diluted earnings per share, above consensus estimates of 53 cents per share and above the 23 cents per share figure when the business was still part of XPO Logistics Inc. Revenue rose to $2 billion, compared with $1.6 billion in the 2020 quarter when the contract logistics business was part of XPO. GXO reported adjusted net income of $65 million and adjusted earnings before interest, taxes, depreciation, and amortization of $163 million for the third quarter, compared with $142 million in pro forma adjusted EBITDA for the same period in 2020. 

GXO raised its pro forma full-year 2021 financial targets, with revenue forecast at $7.6 billion to $7.8 billion from $7.5 to $7.7 billion.


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Manduca said the company is just getting started and the first earnings release puts some numbers behind the GXO story.

"It's going to take time; it's a journey, so having the earnings out … I think alleviates some people's [concerns]," he said. "If we just continue to do what we say, and say what we do, I think the market will reward us over time. We're seeing customers come to us more so than ever."

For now, investors are starting to warm to the company, boosting the stock from its open of $48.38 when it first went public to about $95 earlier this week, but they want to see more.

"With the stock already trading at an eye-watering 35x FY22 MSe P/E, numbers need to keep going up a lot if the stock needs to keep its momentum," Morgan Stanley's Ravi Shanker wrote in a research note following the earnings release. "It is likely that management is just being very conservative given the early days as a standalone story, which would be the right approach, in our view. However, this means that for now, GXO remains the show-me story."

Manduca said of contracts signed this year, GXO has seen 40% being new outsourced contracts, 31% are an expansion of current contracts and 29% are companies switching from competitors.

"That's a really healthy business," he noted. "This guy [CEO Malcolm Wilson] really knows warehouses. Some of the technology-driven contracts are really long in length – we're talking five to 10 years."

In an interview with CNBC on the day, earnings were released, Wilson touted the early success GXO has had. The company, he said, signed over $1 billion in aggregate lifetime new business in the quarter and has inked over $4 billion year to date "that's really set us up for a great 2022."

The average contract length is five years, Wilson said and includes customers across many verticals – e-commerce, retail, food and beverage, and consumer packaged goods.

"We've been working so closely with all of our customers," Wilson told the media outlet. "We've been planning with them for months and months and in that process, deploying more and more automation in our warehouses. In North America, we've been recruiting 10,000 new GXO employees."


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Manduca said 100% of contracts signed in Q3 involved some type of automation. GXO is testing over 100 different technologies in its facilities, he noted, as it seeks to bring to life solutions that make sense for customers, rather than putting in "tech for tech's sake."

"The RFP process is a hand-in-glove bespoke process," Manduca said. "We will never, ever, in our dedicated warehouse facilities, create a boilerplate. It's about value-added services. This is personalization to a whole new degree. This idea of pushing boxes around by hand could not be any further from the truth."

Despite some issues others have had standing up warehouses, Manduca said GXO will have most facilities that were agreed to earlier this year operational by the new year. The company's top 20 customers grew 37% in Q3, he said, and as they have grown, so too has GXO. The company has added 22 new sites for 16 of the top 20 this year.

"People are buying and shopping online and brands are leveraging e-commerce and we play directly into that," Manduca said.

In October, GXO made two significant announcements related to expanding its customer base. The second was that GXO was now shipping inventory direct to Saks consumers from a GXO e-fulfillment center in Middletown, Pennsylvania. The announcement followed a similar announcement earlier in the month when GXO said it would open a 715,000-square-foot facility in Goodyear, Arizona, for Abercrombie & Fitch A. The Saks operations are being run out of a 400,000-square-foot GXO facility. Saks occupies about 280,000 square feet and the facility houses about 50% of Saks overall product base at the facility.

Both facilities are or will be equipped with automation.

Saks, which is a new customer win for GXO, is leveraging GXO Direct for the new distribution effort. GXO Direct is a shared space distribution network that allows businesses to position inventory closer to the target customer. In addition to reducing fixed costs and transit times, the solution helps lower shipping miles and carbon dioxide emissions by reducing the need for expedited air transportation, which is six times more carbon-intensive than over-the-road transport, while providing flexibility for rapid shifts in inventory as demand changes, GXO explained.

Among other companies that began new relationships with GXO in the third quarter were Currys, Raytheon, Zalando, Apple AAPL, Asos, and Zara. The new wins in 2021 are expected to add about $700 million in incremental 2022 revenue, the company said in its earnings release.

Click for more articles by Brian Straight.

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