01—Abstract
Summary
Summary of the 10-K filed February 14, 2019. Cited figures are marked; the original filing is the authoritative source.
XPO Logistics, Inc., a Delaware corporation, describes itself as a top ten global provider of supply chain solutions, operating through two segments, Transportation and Logistics.
In 2018 revenue was $17.3 billiona, up from $15.4 billion in 2017, with Transportation contributing approximately 65% and Logistics approximately 35%. Operating income rose to $704 million from $582 million, net income attributable to XPO was $422 million versus $340 million, and diluted earnings per share were $2.88 compared with $2.45 in 2017. Net income for 2017 included a $173 million tax benefit from the Tax Cuts and Jobs Act.
Cash flow strengthened, with net cash provided by operating activities of $1,102 millionb in 2018 versus $785 million in 2017. Total debt was $4.4 billion at year-end 2018 ($4,415 million principal balance), and long-term debt was $3,902 million. The company repurchased 10 million shares for $536 million in 2018 and completed a further 8 million-share, $464 million repurchase in January and February 2019.
On February 13, 2019, the Board authorized a new repurchase of up to $1.5 billionc of common stock. The filing also flags a material change in its largest customer relationship: the customer curtailed business in the fourth quarter of 2018 and downsized further in early 2019, which management estimates will reduce 2019 revenue by approximately $600 million. Other notable risks include ongoing securities class action litigation filed in December 2018, independent contractor classification claims in the U.S. and Europe, and Brexit-related exposure, as 38% of 2018 revenue came from the U.K. and Europe.
02—Key points
Key Highlights
- Revenue rose 12.3% to $17.3 billion in 2018, driven by European and North American contract logistics and growth in LTL, freight brokerage and last mile.
- Operating income increased to $704 million from $582 million, and net income attributable to XPO rose to $422 million from $340 million.
- Operating cash flow was $1,102 million in 2018, up from $785 million in 2017, and capital expenditures for property and equipment were $551 million.
- The largest customer curtailed business in Q4 2018 and downsized further in early 2019; management estimates a roughly $600 million negative impact on full-year 2019 revenue.
- Share repurchases totaled $536 million in 2018 and the $1 billion program was completed in early 2019; a new $1.5 billion repurchase authorization was approved on February 13, 2019.
- Total debt principal was $4,415 million at December 31, 2018, including a $500 million Unsecured Credit Agreement, of which $250 million was drawn in each of December 2018 and January 2019.
- Two securities class action lawsuits were filed in December 2018; one was voluntarily dismissed in January 2019 and the other remains pending at an early stage.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Xpo kept $0.02.
- Revenue$17.28B100.0%
- Cost of revenue−$9.01B52.2%
- Gross profit$8.27B47.8%
- Operating costs−$7.56B43.8%
- Operating income$704.0M4.1%
- Interest, other & tax−$282.0M1.6%
- Net income$422.0M2.4%
Where FY2018 revenue went
$17.28B- Cost of revenue: $9.01B, 52% of revenue
- Other operating costs: $5.72B, 33% of revenue
- Net income: $422.0M, 2.4% of revenue
- SG&A: $1.84B, 11% of revenue
- Interest, other & tax: $282.0M, 1.6% of revenue
Kept 2.4% as net incomeNet income $422.0M · 2.4%Interest, other & tax $282.0M · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 14, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $17.28B$15.38B | +12.3% |
| Cost of Revenue | $9.01B$8.13B | +10.8% |
| Gross Profit | $8.27B$7.25B | +14.0% |
| SG&A Expenses | $1.84B$1.66B | +10.6% |
| Operating Expenses | $16.57B$14.80B | +12.0% |
| Operating Income | $704.00M$582.00M | +21.0% |
| Interest Expense | $217.00M$284.00M | −23.6% |
| Net Income | $422.00M$340.00M | +24.1% |
| EPS (Basic) | $3.17$2.72 | +16.5% |
| EPS (Diluted) | $2.88$2.45 | +17.6% |
| Shares Outstanding (Basic) | 123.00M115.00M | +7.0% |
| Shares Outstanding (Diluted) | 135.00M128.00M | +5.5% |
05—Questions
Frequently Asked Questions
How did XPO perform financially in 2018 compared with 2017?
Revenue increased 12.3% to $17.3 billion from $15.4 billion. Operating income rose to $704 million from $582 million, and diluted earnings per share were $2.88 versus $2.45. 2017 results included a $173 million tax benefit from the Tax Act, so net income of $444 million in 2018 compared with $360 million in 2017 is not directly comparable on a tax basis.
What is the impact of the largest customer's reduced business?
During the fourth quarter of 2018, the largest customer curtailed its business, reducing revenue by $46 million. In early 2019 the customer further downsized its remaining business. Based on 2018 data, management estimates a negative impact of approximately $600 million on full-year 2019 revenue, or about two-thirds of that customer's 2018 revenue.
How is XPO returning capital to shareholders and funding its activities?
XPO repurchased $536 million of common stock in 2018 and, in January and February 2019, repurchased 8 million shares for $464 million, completing the $1 billion program. The Board authorized a new repurchase of up to $1.5 billion on February 13, 2019. The company has never paid cash dividends on common stock. Repurchases were funded by the unsecured credit facility and available cash.
What are the main legal and regulatory risks disclosed?
Key risks include lawsuits and state proceedings claiming that owner-operators and contract carriers should be classified as employees, including adverse decisions in certain California cases; securities class action litigation filed in December 2018; labor organizing efforts; and regulatory changes such as FMCSA CSA and ELD requirements. The filing states that the company does not believe the ultimate resolution of pending matters will have a material adverse effect, though outcomes cannot be predicted with certainty.
06—Continue