GXO Logistics Posts Strong Fourth Quarter and Calendar Year 2021 Results

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Fourth quarter and calendar year 2021 earnings for GXO, a global contract logistics services provider based in Greenwich, Conn., were very strong, the company said earlier today. It was GXO’s second standalone earnings release since its spin-off from XPO Logistics in August 2021.

GXO said fourth-quarter revenue was $2.3 billion, marking a 28% year-over-year increase while still part of XPO Logistics, for a new record business. Net income was $56 million and increased 10.8% annually, and operating income of $63 million increased 20.6%. Adjusted EBITDA also reached a new high, at $167 million, up 12.6% annually. For calendar year 2021, revenue of $7.9 billion was up 21.5%, with operating profit of $151 million.

GXO saw significant traction in the fourth quarter, for e-commerce and reverse logistics revenues, which grew 45% and 28%, respectively, and the company reported double-digit revenue growth for each quarter of 2021, including a 19% increase in the fourth quarter. Additionally, he noted that his new customers won in 2021 are expected to generate incremental revenue of approximately $830 million in 2022, which he estimates is approximately 10% of 2021 revenue. He also noted that the pipeline the company’s sales had reached an all-time high of $2.5 billion, with revenue retention rate in the mid-90s since the split was formalized.

“More than ever, customers are demanding innovation, and our combination of cutting-edge technology, global scale and world-class talent continues to differentiate GXO,” GXO CEO Malcolm Wilson said in a statement. “We are pioneers in automated and ESG-focused solutions that improve safety and reduce the carbon footprint of global supply chains, and we look forward to releasing our first sustainability report later this year. We see significant growth opportunities looking ahead to 2022 as the tailwinds of e-commerce, automation and outsourcing continue unabated. Our new business wins and sales pipeline are the highest they have ever been, which, combined with our improved revenue retention rate, positions us extremely well to achieve our organic revenue growth target of 8% to 12% in 2022. In addition, we continue to realize the benefits of our 2021 acquisition in the UK which, in addition to two recent technology customer wins, has already realized synergies of over $30 million , or about 5% of its sales.

Mark Manduca, chief investment officer of GXO, said ML that the 2021 peak season has highlighted how the company has been able to successfully deliver to its customers, which is a big question mark for many people getting into it, with an optimistic outlook for the to come up.

“The growth trajectory here is secular, Santa Claus has passed the baton to the Easter Bunny, and we’re just passing through,” he joked. “That was clear in our e-commerce and reverse logistics gains. We produced free cash flow and have a strong balance sheet and returns on invested capital in excess of 30%, and we raised our guidance.”

Manduca explained that GXO’s business was running at full steam in the fourth quarter, with GXO serving as a solution provider for its customers across multiple verticals. And he observed that GXO’s reverse logistics operations accelerated on a tougher year-over-year comparison in the fourth quarter versus the third quarter, up 28% in the fourth quarter from the 21% year-on-year gain in the third quarter.

“It means that when we review our clients’ projects, we clearly focus on returns as a business, but clients also come to us for our e-commerce and fulfillment solutions, and they know they can count on us in times of stress within the wider supply chain,” he said.

As an example, he observed how, in November, the volume of Black Friday returns for one of his clients jumped on the e-commerce side, while a tech shipper client saw their returns increase by 46% per year, and a customer of a major clothing brand saw volumes increase by 36%.

“It’s not sporadic, it’s widespread,” Manduca said. “It’s systemic of what’s happening in our business, with e-commerce market share being gained and that’s a secular growth driver in itself. And automation is growing as well, and we’re a market leader, as well as outsourcing.People come to us, because they want to be with the top notch, well-capitalized player in this space.

Inflation: Asked about the impact of inflation on operations, Manduca said no one wants higher inflation, with the caveat that GXO is a real asset producing real consumer goods, and really playing like a hedge. against inflation and a beneficiary of higher inflation. The reason is, he said, that it actually drives customers to want to change the way they do things.

“And that moves them to the large-scale, technologically advanced player in space, which basically means more outsourcing to us, and that’s good for GXO,” he said. “We see the US market with modest high single digit to low double digit inflation on the labor side, to be clear. In the European market, we are seeing slightly more modest single-digit inflation growth year-on-year. For our open-book markets, the costs are passed on, and for our closed-book contracts, which combined with our hybrids, it’s essentially 60% of our business. We have inflation escalators on the top line, and we pass on our costs on a cost basis and that means we are a modest beneficiary of inflation when inflation rises.

Outlook 2022: For 2022, GXO estimates organic revenue growth of 8% to 12%, with adjusted EBITDA of $707 million to $742 million and free cash flow of approximately 30% of adjusted EBITDA.

“This is a real high-growth company that is focused on writing very strong contracts, and one of the main considerations in fueling our growth is to always make sure that we are really focused on those customers at long-term, sustainable and top notch,” Manduca said. . “It’s the backbone of everything we do, and we’re landing and growing with our existing customers and also taking on first-time contractors and taking share of the competition with our scale and technology. “

M&A outlook: Manduca said M&A moves in 2022 are a possibility in order to fill certain service niches or needs may expand to certain geographies.

“Things are on the table as we consider these types of moves,” he said. “This business deserves acquisitions, and this business is in a very fragmented market, where the top five customers control less than 25% of the market share. We have the track record and the heritage to do business and that definitely makes part of our wheelhouse. I’d say it’s somewhere in the region of low to single digit bolt-on deals a year, maybe a mid-size deal. We’re going to be very focused on getting back on the invested capital and what the shareholders want in terms of agreement.

About the Author

Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handlingand Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight forwarding and material handling industries on a daily basis. Contact Jeff Berman

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