GXO Logistics Inc., a contract logistics provider, is setting up a mergers and acquisitions campaign that will focus on North America and continental Europe, according to the company’s CFO on Thursday.
In a phone interview with FreightWaves, Baris Orem stated that M&A actions will be geographically focused and will target smaller contract logistics competitors lacking the scale and technology to fulfill the expanding demands of its customer base.
Germany, Europe’s largest market, will be a major target of future M&A activity, according to Orem. Approximately 90% of its revenue is generated in five countries: the United States, the United Kingdom, France, the Netherlands, and Spain.
GXO (NYSE: GXO), the world’s largest pure-play contract logistics service, does not need to acquire companies in order to grow in size, according to Orem. “We’ve already got the scale,” he explained.
GXO earns around 70% of its sales in the United States and the United Kingdom, with more than half coming from the e-commerce, omnichannel retail, and consumer technology segments. It has a smaller presence in the food and beverage, industrial production, and consumer packaged products industries.
GXO is trying to expand its presence in the North American pharmaceutical and life sciences logistics areas, where it presently has limited exposure, according to Orem.
GXO, which was spun off from transport company XPO Logistics Inc. (NYSE: XPO) last summer, revealed in late February that it had acquired Clipper Logistics LLC in the United Kingdom for $1.3 billion in cash and stock. Clipper derives over 80% of its revenue in the United Kingdom, with the remainder coming from Germany and Poland.
Clipper also has a strong presence in product returns and refurbishment, a market that GXO intends to grow into.
According to Orem, the two companies have relatively little client overlap. However, he claims that there are large duplicative costs that can be rationalized after the purchase is completed later this year.
Brad Jacobs, the creator, chairman, and CEO of XPO, is also the non-executive chairman of GXO. GXO’s business, including M&A attempts, is controlled by GXO executives, according to Orem. Jacobs and the GXO board are consulted on strategic initiatives, but GXO’s business, including M&A activities, is run by GXO executives.
In four years, Jacobs established XPO through 17 acquisitions. He discontinued M&A in 2015 and has no plans to restart it. XPO recently sold its intermodal and drayage operations and intends to spin-off or list all of its remaining assets, with the exception of its North American LTL business, on the public market.
GXO published better-than-expected first-quarter earnings late Wednesday and upped its full-year revenue and income projections, prompting Orem’s comments. The company posted adjusted diluted earnings of 59 cents per share, exceeding consensus projections of 50 to 52 cents per share and far exceeding the 37 cents per share reported in the 2021 quarter, when it was still a part of XPO. Adjusted net income increased to $68 million, up from $42 million in the previous quarter. Revenue increased by 14% to slightly about $2.1 billion.
GXO forecasts adjusted diluted earnings per share to decline between $2.70 and $2.90 this year. According to GXO, the guidance equates to EPS growth of between 29 and 39 percent. Revenue would increase by 11 percent to 15 percent, up from the previous range of 8 percent to 12 percent, according to the business.
GXO officials stated that the firm is enjoying robust demand across all of its verticals, with first-time outsourcing from e-commerce and omnichannel retail customers providing particular strength. Though more commerce is being conducted in-store as pandemic-related fears subside, CEOs predict demand from firms that wish to conduct business directly and online with customers to continue robust.
GXO, whose long-term customer ties provide them with multiyear insight, sees no signs of a decrease in demand. It has minimal issues finding personnel, and cost-inflation pass-throughs rarely elicit customer dialogues. “There is never a big debate,” CEO Malcolm Wilson told analysts on Thursday. “There are no significant dramas about pass-throughs.”
GXO expects additional business as corporations outsource increasingly sophisticated and demanding inventory-management functions to third-party professionals. Inflation may also be a minor concern for multinational customers because contract warehousing, unlike transportation, accounts for a small portion of a company’s cost of goods supplied.
