RXO’s earnings released Thursday, like those of C.H. Robinson a day before, looked to various data points to show “green shoots” that indicate a market bottom for 3PLs may have been reached and a turnaround has commenced.
The focus at C.H. Robinson was on its sequential performance, and investors Thursday liked what they saw a day earlier. Robinson’s stock price was up 12.26%, or $8.84, to $80.93. It was one of the biggest gainers of any stocks for the day.
Although the indicators cited by RXO (NYSE: RXO) were not as overwhelmingly positive as those at C.H. Robinson, RXO’s stock price Thursday climbed as well, though not as much as Robinson’s (NASDAQ: CHRW). RXO was up $1.12, to $20.12, a gain of 5.89%.
While year-to-year comparisons are the standard fare in financial reporting, comparing brokerages on a sequential basis the past two quarters seems appropriate as investors and analysts dig for any sign of life in the moribound 3PL industry.
On that basis, RXO’s earnings on the surface didn’t seem to be pointing toward a significant turnaround. But compared to C.H. Robinson, it wasn’t carrying the burden of proving wrong the enormous short positions that have been taken in CHRW stock, reportedly one of the largest on Wall Street.
Those sequential numbers were mostly negative for RXO. The company as a whole recorded revenue of $900 million for the quarter, down from $1 billion in the fourth quarter.
RXO had a GAAP net loss of $15 million in the first quarter, compared to fourth-quarter 2023 net income of $2 million. Adjusted (non-GAAP) net income in the fourth quarter of 2023 was $7 million. For the first quarter, it was a loss of $4 million.
Adjusted earnings before interest, taxes, depreciation and amortization for the first quarter at RXO was $15 million, but it was $31 million one quarter earlier. The adjusted EBITDA margin in the first three months of the year was 1.6%, compared to 3.2% in the fourth quarter.
Revenue in key groups fell from the fourth quarter. Truck brokerage revenue sequentially fell to $564 million from $610 million in the fourth quarter. Last mile dropped to $232 million from $257 million. Freight forwarding rose slightly, to $55 million from $51 million, but managed transportation declined to $97 million from $103 million.
Gross margins are getting better
But RXO chose to highlight other metrics that showed improvement.
Jared Weisfeld, chief strategy officer, said the 3PL produced steadily better gross margins through the quarter. Brokerage gross margin was 14.8% in the fourth quarter. It was 14.2% in the first quarter but was on an upward climb through the three months after getting hammered in January, a bad month for all transportation companies due to extreme weather in certain parts of the country.
“The gross margin percentage within our brokerage business improved every single month,” Weisfeld said in an interview with FreightWaves. “We saw continued improvement from January to February, February to March and March to April as well.”
Gross margin is measured as revenue less the cost of purchased transportation. Weisfeld said RXO “brought down the cost of purchased transportation very quickly after January and all of the inclement weather.”
“We guided gross margin percentage from the first quarter and second quarter to be between 13% and 15%, so we are continuing to maintain very strong gross margins,” Weisfeld said.
Weisfeld looked to other data points on the earnings call to promote the idea that things are getting better sequentially even if they might not look like that on a year-to-year basis.
Revenue per load climbing up from the bottom
For example, the year-on-year revenue-per-load decline was 33% in the second quarter of 2023 (compared to the second quarter of 2022), with improvement over the next three quarters, narrowing to a 26% decline, 20% decline and a 15% decline in the first quarter of 2024.
Volume also was highlighted by Weisfeld. Although truck brokerage revenues were down from a year ago, he said overall brokerage volume growth was 11% year on year, with full truckload posting an 8% increase and LTL volume growth of 29%. On the earnings call, he said full-year volume growth in LTL is expected to be more than 30%.
Also on the call, CEO Drew Wilkerson touted RXO’s LTL capabilities. “The reason that we’re getting this LTL business is that it is coming from customers who do business with us on the truckload side,” he said. “And so what these customers have told us is LTL is a small piece of their overall revenue and what they’re managing, but it’s a big piece of the headaches that they get, meaning claims, late deliveries, things like that.”
He added in regard to the 30% growth target that comparisons with a year ago “get tougher in the second half, but I do expect us to still be growing LTL volume.”
Not all comparisons to the first quarter of 2023 were negative. Weisfeld said productivity, as measured in loads per head per day, was up by 18% year over year. RXO also saw its brokerage contract volume increase by 18% year over year in the first quarter.
In the prepared statement released with the earnings, Wilkerson chose to highlight those two benchmarks. “RXO continued to deliver exceptional brokerage volume growth and strong margin performance in the first quarter of 2024, despite persistent softness in the freight market,” Wilkerson said.
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