GXO Logistics (NYSE: GXO) is the world’s largest pure-play contract logistics company.
The company was founded from XPO in 2021, based on the logic that, as separate companies, each could make acquisitions in its own interest and allocate capital in the way that suited it best.
GXO has delivered on that vision by making three acquisitions in three years and growing organically. However, the weak economy has posed challenges for the company. Pandemic-related inventory surpluses have forced many of its customers to focus on reducing their inventories over the past year, and the industrial economy has also been slow.
As a result, GXO shares have been trading mostly sideways for the past few years, and the stock was just above a 52-week low after its recent second-quarter earnings report. It is now down 54% from its post-split peak in the heady stock market of 2021.
Should investors take advantage of the recent wave of selling? Let’s take a closer look at GXO’s position after the latest report.
GXO continues to work hard
GXO shares fell 5% after reporting results Tuesday. The results were mostly in line with estimates, but organic revenue growth of 2% was at the lower end of the company’s full-year guidance, and profits were hurt by macroeconomic headwinds.
Reported revenue jumped 19% to $2.8 billion in the quarter, primarily due to the acquisition of Wincanton early in the second quarter, which strengthened the company’s presence in the U.K., particularly in key verticals such as aerospace and defense, and added more than 200 facilities to the GXO base.
Costs associated with the integration of Wincanton weighed on margins in terms of adjusted earnings before interest, taxes, depreciation and amortisation (BAIIA) fell from $190 million to $187 million and adjusted earnings per share fell from $0.70 to $0.55.
In a sign that momentum is picking up, GXO said its sales pipeline, or backlog, hit a 12-month high of $2.3 billion. The group signed contracts worth $270 million in annualized revenue during the quarter.
The GXO Advantage
The logistics industry has evolved from traditional pick and pack to high automation, and GXO has invested heavily in technology, seeing it as a significant advantage.
In an interview with Motley Fool, GXO Chief Strategy Officer Kristine Kubacki emphasized the importance of technology, saying:
We never have a sales discussion with a customer that doesn’t include some form of automation, and I think that’s what we’ve been doing the longest. I think we do it best, and I think that’s what makes the difference with our customers.
GXO recently introduced a humanoid robot for its warehouse as part of a pilot program. In collaboration with Apptronik, the company deployed a general industrial humanoid robot that stands 1.73 m tall, can carry 25 kg and runs on interchangeable batteries. It can perform tasks such as picking and packing items.
Artificial intelligence is also becoming a source of…
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