GXO Logistics Fell Sharply Today, But a Turnaround Could Be Coming

GXO Logistics (NYSE: GXO) was spun off from XPO five years ago, but the business has disappointed investors during that time, and the stock has been essentially flat since going public.

In the last year, CEO Patrick Kelleher has taken the helm and is repositioning the company for organic growth, rather than as a roll-up operator. Those efforts are showing results, but investors are still frustrated as the stock's 10% decline today shows after it reported second-quarter earnings yesterday.

Let's take a look at the results before discussing GXO's prospects for a turnaround.

Image source: GXO Logistcs.

GXO makes progress, but misses estimates

GXO reported revenue growth of 4.3%, including organic revenue growth of 3.4%, to $3.44 billion, just shy of the consensus of $3.46 billion.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased from $212 million to $219 million, and adjusted earnings per share rose from $0.57 to $0.59, which edged out estimates at $0.58.

GXO continued to call for organic revenue growth of 4%-5% for the full year, and narrowed its bottom-line guidance, seeing adjusted earnings per share of $2.95-$3.15 versus a previous forecast of $2.90-$3.20, which compares to expectations of $3.04.

However, beyond the headline numbers, there were some bright spots that bode well for future growth. The company secured $410 million in new business, up 34% from the quarter a year ago, as management focuses on strategic growth verticals in B2B like aerospace & defense, technology, industrial, and life sciences.

The company also said that business wins in North America jumped 85% from the quarter a year ago, showing that its focus on growth opportunities in North America and B2B verticals is paying off.

It typically takes the company three to six months to convert new business signings into revenue, so those wins should begin to show up on the income statement starting next year.

Why a turnaround could be coming

Kelleher took over GXO about a year ago and has been primarily focused on accelerating organic revenue growth and improving operating margin. In an interview with The Motley Fool, he said the most important factor in judging the company's success is organic revenue growth, and noted that its operating margins of 3%-4% lag competitors at around 6%, which Kelleher believes GXO can achieve in time.

In order to do that, he's focused on continuing to drive organic growth, especially in high-margin areas like the B2B industries, and he sees emerging opportunities like data centers, where revenue tripled in the quarter, and in Asia.

He said the company can deliver margin improvement by growing relationships with existing customers, adding new customers in high-margin businesses, investing in technology including robotics, cutting costs, and driving efficiency and productivity. As one example of increased efficiency, Kelleher shared that the company just created a global procurement function for the first time.

Mark Nov. 16 on your calendar

GXO will host an Investor Day on Nov. 16 that could spark a turning point for the stock. Management will provide its guidance through 2030 and spell out its plans to get there. If investors like what they hear, the stock could move significantly higher. Additionally, Investor Days are at the discretion of management, so holding one is generally a bullish sign that it has something positive to share, or at least aims to redirect the market narrative.

The same logic that applied to GXO at spin-off remains valid today. The company is the largest contract logistics provider in the world, and it has a number of levers to pull to drive growth in the coming years.

We'll learn more about the company's plans at Investor Day, but GXO looks poised for a stronger 2027.

Jeremy Bowman has positions in GXO Logistics and XPO. The Motley Fool recommends GXO Logistics and XPO. The Motley Fool has a disclosure policy.