XPO’s Q4 progressing as expected

XPO provided a largely inline November update on Monday after the market closed. The Greenwich, Connecticut-based company’s less-than-truckload segment saw tonnage fall 5.4% year over year in the month as shipments declined 2.2% and weight per shipment was down 3.2%.

The company also provided final October statistics. Tonnage was down 3.8% y/y in the month, which was in line with management’s prior update for a roughly 3% decline.

Results from the first two months of the fourth quarter appear to place the carrier on track to meet the outlook provided on its third-quarter call in late October. At the time, the company was calling for a mid-single-digit y/y tonnage decline in the period.

The sequential tonnage change in November was slightly worse than typical seasonality, but not surprising given macroeconomic headwinds.

November manufacturing data provided on Monday showed the sector has been in contraction for 35 of the past 37 months. The Purchasing Managers’ Index (PMI) registered a 48.2 reading for the month, 50 basis points worse than the October level. (A reading above 50 signals expansion while one below 50 indicates contraction.) The new orders index fell two percentage points to 47.4.

XPO(NYSE: XPO) doesn’t provide revenue-based metrics in its intraquarter updates, however, it previously forecast a y/y yield increase for the fourth quarter comparable to the 6% increased reported in the third quarter. The outlooks for tonnage and yield imply LTL revenue will be flat to slightly higher compared to 2024 fourth quarter.

The company’s prior outlook also called for margin improvement in the fourth quarter.

The adjusted operating ratio (inverse of operating margin) in XPO’s LTL unit normally deteriorates between 200 and 250 bps from the third quarter to the fourth quarter each year, but the carrier plans to materially outperform that range this year. While specific fourth-quarter margin guidance was withheld, the company reaffirmed a goal of achieving at least 100 bps of full-year margin improvement, implying a fourth-quarter adjusted OR around 84% — an improvement of over 200 bps y/y.

The unit has recorded 350 bps of margin improvement over the past two years while other public carriers have seen margins deteriorate. XPO grew margin 150 bps y/y in the third quarter even though revenue was flat in the period. Several pricing, cost and optimization initiatives are helping drive the outperformance.

On a two-year-stacked comparison, XPO’s November tonnage was down 9.8%, 200 bps better than the October decline.

Shares of XPO were off 1% in after-hours trading on Monday. The stock was up 1% in Monday’s regular trading session, outpacing the S&P 500, which was down 0.5%.