GXO Logistics (NYSE: GXO) shareholders have had to be patient in the years since the company was spun off from XPO in 2021. That event came at the height of the pandemic stock market boom, which was particularly kind to e-commerce businesses, and the new stock jumped out of the gate.
However, GXO’s stock tanked during the market-wide sell-off of 2022, and since then, the stock has struggled to build momentum amid broader weakness in the transportation and logistics industries. More recently, it has been held back by concerns about how President Donald Trump’s tariffs will impact the global economy.
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However, the company, which is the world’s largest pure-play logistics operator, got two pieces of good news last week that helped send the stock price up 12% on Friday.
Image source: GXO Logistics.
GXO is turning the page
First, GXO’s acquisition of Wincanton, a U.K.-based logistics company, was finally approved by the U.K. Competition and Markets Authority, more than a year after GXO announced its plans for the deal. The purchase was approved pending the divestment of a few grocery contracts, and integration will be allowed to go forward once certain administrative conditions are met. That is key because GXO has not been able to capture the benefits of the acquisition without integrating it. Management expects integration to begin in the third quarter and sees Wincanton adding value, in particular in the aerospace and defense industry.
As a result of both that approval and other trends, management raised its guidance for the year. It now expects organic revenue growth of 3.5% to 6.5%, up from a previous range of 3% to 6%. It also raised its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast to a range of $860 million to $880 million, from a prior range of $840 million to $860 million. Its adjusted EPS guidance was lifted from a range of $2.40 to $2.60 to a range of $2.43 to $2.63.
In addition to the expected benefits from the Wincanton acquisition, outgoing CEO Malcolm Wilson noted, “Across our operations, we are seeing better than expected volumes and accelerated productivity gains in existing operations and new start-ups.”
Additionally, on Friday, the company named Patrick Kelleher as its next CEO. Wilson, who headed GXO since the spin-off, announced in December that he would be retiring once his successor was found.
Kelleher was most recently the North American CEO of DHL Supply Chain. He also held a number of other executive positions with DHL and helped lead its advanced robotics initiative. Additionally, Kelleher oversaw four M&A transactions, making him a good fit for GXO, as the company has made M&A a key part of its strategy.
“Patrick is a world-class operator with the relevant experience to lead GXO through the next phase of growth,” said company Chairman Brad Jacobs in the press release announcing the hiring.
Is GXO a buy?
With those two announcements, GXO put a lot of uncertainty behind it. The company has been waiting more than a year to capitalize on its Wincanton acquisition. Now, it can begin integrating the two operations, cutting costs and leveraging Wincanton’s assets and expertise in areas like aerospace and defense.
Naming Kelleher as the next CEO eliminates the uncertainty around the company’s leadership and positions it to move forward and execute its strategy.
Investors shouldn’t overlook the other key factor that it revealed — that its performance and productivity gains have been better than expected. In its first-quarter earnings report, the company pushed back on the assumption that uncertainty around tariffs was hurting the business by reaffirming its guidance. At the time, it noted that its contracts are designed to withstand macroeconomic volatility, and emphasized that its geographical diversification makes the company more resilient in challenging times. In sum, management asserted that the business can continue to grow even with a volatile economic backdrop.
GXO’s growth may not accelerate until there’s some greater clarity about the trade war situation, but the stock still looks like a good value over the long term. This could be the beginning of GXO’s recovery.
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Jeremy Bowman has positions in GXO Logistics and XPO. The Motley Fool recommends GXO Logistics and XPO. The Motley Fool has a disclosure policy.
