The growing financial gap between RXO and C.H. Robinson, the two largest publicly-traded brokerages who also carry publicly-traded debt, grew more stark this week with an action taken by S&P Global Ratings.
A few months after S&P Global raised the debt rating of C.H. Robinson to BBB+, the ratings agency this week put competitor RXO on a negative outlook.
The move does not alter RXO’s BB credit rating at S&P Global (NYSE: SPGI). But a negative outlook means that the ratings agency sees conditions with the company that could lead to a downgrade in its rating over the next several months.
At S&P Global, RXO (NYSE: RXO) and C.H. Robinson (NASDAQ: CHRW) are four notches apart. RXO’s BB rating is non-investment grade while C.H. Robinson’s BBB+ is above the cut line between investment and non-investment grade debt.
As far as S&P Global’s primary competitor, there is a significant divergence between the way Moody’s (NYSE: MCO) and S&P Global see RXO. Moody’s has a Baa3 rating on Moody’s, which is considered two notches above the S&P rating of BB. The Moody’s rating is also investment grade.
Moody’s has C.H. Robinson at a Baa2 rating, just one notch higher than the Moody’s grade of Baa3 for RXO.
The negative outlook that Moody’s has on RXO has been in place since March 2024, a clear example of how a negative or positive outlook will signal conditions that may be ripe for a downgrade or upgrade but without any time limit on when or if a change may be coming.
The gap between C.H. Robinson and RXO also can be seen in equity markets.
Per Barchart data, C.H. Robinson stock is up about 46.2% in the last 52 weeks. RXO has been cut almost in half in the last 52 weeks, down 49.5%.
The two companies are serving the same market. But diluted earnings per share at C.H. Robinson in the third quarter were $1.34. RXO was slightly unprofitable during those three months.
RXO’s performance through 2026, S&P Global said in its report on the negative outlook, “will remain pressured from subdued freight demand through (the year), with earnings growth highly depending on restructuring cost containment from RXO’s Coyote Logistics integration,” the agency said.
A key metric S&P Global cited in its decision to put RXO on a negative outlook was its ratio of funds from operations to debt. S&P Global said the FFO to debt ratio at RXO will be about 16% this year.
“We assume this ratio will improve to just over 20% in 2026, which incorporates lower Coyote-related restructuring costs (estimated at about $54 million for 2025) and synergies that are expected to lead to higher earnings and cash flow,” the ratings agency said.
By contrast, when S&P Global raised its rating on C.H. Robinson, it said the FFO to debt ratio at the 3PL exceeded 45%. That was a key reason for the higher debt rating.
In a prepared statement supplied to FreightWaves by RXO, the company said that “the ongoing soft freight market continues to impact the entire industry.”
“RXO has a strong balance sheet, access to significant capital, and a low leverage ratio. We remain well positioned to drive significant long-term earnings and free cash flow growth,” it said.
Coincidentally, just about the time S&P Global was putting out its negative outlook, Jared Weisfeld, chief strategy officer at RXO, was speaking to the UBS Global Industrials and Transportation Conference. He addressed the issue of Coyote integration in his interview with UBS transportation analyst Thomas Wadewitz.
Weisfeld said of an overall cost reduction of $125 million taken out of RXO since it was spun off from XPO, about $60 million of that came from Coyote. RXO has announced another $30 million in anticipated cost cuts.
He also said there will be an impact in 2026 from “actions that were taken in 2025 from a synergy standpoint that will be fully realized into (next year).”
Weisfeld also said the integration of the Coyote business into RXO is “effectively complete.”
“We are integrated from a sales standpoint, integrated from an (operations) standpoint, carrier integration, shipper integration on the customer side,” he said.
The S&P Global report acknowledged the integration of Coyote was a done deal. But that may not be enough to fight off the impact of the freight market.
“We do not envision material near-term improvement and there is no visibility regarding the timing of an eventual strengthening in freight market conditions,” the ratings agency said. “Therefore, we believe there is at least a one-in-three chance we could lower the rating over the next 12 months. The negative outlook reflects the risk that any further deterioration in ongoing weak freight market conditions expected for 2026 could offset the assumed reduction in RXO’s cost base, limiting improvement in the company’s credit measures to levels we view as commensurate with our BB (rating),” S&P Global said in its Moody’s report.
Synergies from Coyote aren’t adequate to combat bigger issues, S&P Global said.
For example, while RXO management has touted the success of its last-mile business which is growing, it is “not enough to offset pressure in truckload brokerage.”
RXO’s automotive “expedite-managed” business has “softened significantly from 2024,” S&P said.”We now assume another year of even lower profitability, including gross margins for 2025 at just over 16.0%, down from about 17.0% in 2024 and 18.5% in 2023.”
While during the latest earnings season carriers were expressing optimism that the various regulatory crackdowns on non-English speaking and non-domiciled drivers would aid their business, that is not the way S&P sees things unfolding at RXO.
The pushback on those fronts, S&P Global said, is “leading to some trucking capacity exiting and exerting upward pressure on RXO’s purchased transportation costs for the remainder of the year.” RXO management discussed those issues on its third quarter conference call.
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The post RXO vs. C.H. Robinson: the growing financial divide widens some more appeared first on FreightWaves.
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