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XPO provides freight transportation services in North America, France, the United Kingdom, and elsewhere in Europe. The company operates in two segments: North American less-than-truckload (LTL) and European transportation. Founded in 1989, the company was formerly known as XPO Logistics Inc.

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XPO (XPO): Company Profile, Stock Price, News, Rankings

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Welcome to the XPO First Quarter twenty twenty five Earnings Conference Call and Webcast. My name is Paul, and I will be your operator for today's call. If you have additional questions, you're welcome to get back in the queue, and we'll take as many as we can. Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward looking statements and the use of non GAAP financial measures.

During this call, the company will be making certain forward looking statements within the meaning of applicable securities laws, which by their nature involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statement. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. The forward looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward looking statements except to the extent required by law. During this call, the company also may refer to certain non GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables or on its website.

You can find a copy of the company's earnings release, which contains additional information regarding forward looking statements and non GAAP financial measures in the Investors section of the company website. I will now turn the call over to XPO's Chief Executive Officer, Mario Herrick. Mr. Herrick, you may begin.

Good morning, everyone. Thanks for joining our call. I'm here with Kyle Wissmans, our Chief Financial Officer, and Ali Fadri, our Chief Strategy Officer. This morning, we reported financial results that delivered on our outlook in a challenging freight market. Companywide, we reported first quarter revenue of $2,000,000,000 and adjusted EBITDA of $278,000,000 And our adjusted diluted EPS was $0.73 exceeding expectations.

Importantly, our LTL segment maintained the momentum we carried through year end and outperformed the industry. The highlight of the quarter was a sequential LTL margin improvement that was better than normal seasonality. We've now improved our adjusted operating ratio by a cumulative three seventy basis points over two years, keeping us on the industry's best trajectory for operating efficiency and profitability. In addition to strong margin performance, we accelerated yield growth, operated more cost efficiently with line haul and labor and enhanced service quality. At the same time, we continue to invest in our network to strengthen our competitive position and sustain high returns over time.

I'll walk you through the levers driving our momentum in LTL, starting with customer service. In the first quarter, we delivered a damage claims ratio of 0.3%. Notably, we brought damages down to a record low in the quarter, which is a testament to the discipline built into our service culture. We also continue to raise the bar with on time performance, marking our twelfth straight quarter of year over year improvement. The service centers we've opened over the past year are playing a critical role in improving service by reducing re handles and transit miles.

This helps ensure consistent outcomes for our customers. And for our company, it supports both margin expansion and the scalability of our network. Our larger footprint is also driving tangible gains and efficiency across dock operations, line haul and pickup and delivery. We've now opened almost all of the service centers we acquired and we're seeing the benefit across our network. We've also met our goal of 30% excess door capacity in the current environment.

The success capacity positions us to capture market share in a freight upturn and unlock more operating leverage. In addition to real estate, we're committed to investing in our fleet with both tractors and traders. Since launching our LTL growth plan in 2021, we've added more than 5,000 tractors and 16,000 traders to our network. This supports continued insourcing of line haul and is helping us operate with greater flexibility for customers. The average age of our tractors is now down to four years at the low end of our targeted range.

This benefits both reliability and safety and it also reduces the cost of operating our fleet. Turning to pricing, this remains a cornerstone of our plan and we're seeing the impact of our pricing initiatives on yield growth. In the first quarter, we grew yield excluding fuel by 6.9% year over year, marking an acceleration from the prior quarter. This reflects the strength of our commercial strategy and the value we bring to customers. Our high quality service is earning pricing gains that outpace the market through contract renewals and new business.

In addition, local customers and our premium services are becoming more meaningful parts of our revenue mix and both channels carry a higher margin. We have a growing pipeline of customer demand for our premium offerings, including retail store rollouts and trade show transport. We expect these initiatives to continue driving above market yield growth well into the future. Cost efficiency is another core part of our plan and an area where we made major progress this quarter, particularly with line haul and labor productivity. We lowered our purchase transportation costs by 53% year over year and reduced our outsourced line haul miles to just 8.8 of total miles, the best level in the company's history.

This is a reduction of more than 900 basis points demonstrating that we're executing well ahead of plan. By year end, we expect to reduce outsourced miles even further into the mid single digits, enhancing efficiency and customer service. And when demand returns, the in sourcing we're doing now will protect our cost structure as truckload rates rise, enabling us to generate stronger incremental margins versus prior upcycles. We also continue to improve labor productivity in the quarter with our proprietary technology. Our software anticipates volume shifts before they happen, allowing our managers to flex labor hours in real time and making our network more resilient.

This technology is unique to XPO and is helping us outperform on margins and profitability in the current strain downturn. It will become an even greater advantage for us in the future. Before I close, I want to spend a minute on artificial intelligence. We've been investing in proprietary AI technology to realize its full potential across our business. We've already identified a number of high impact applications initially with line haul optimization, labor planning and pickup and delivery.

These are areas where intelligent automation and better decision making can directly enhance profitability. Recently, we deployed new AI driven linehaul models designed to improve freight flows across our network. These pilots are already delivering higher load averages and transit efficiencies. In our pickup and delivery operations, we're beta testing AI to optimize trailer and route assignments at the shipment level. These tools factor in appointment windows and other logistics to enhance on time performance.

We see AI playing a major role in how we operate, compete and create value over the long term. In summary, our first quarter results reflected strong execution across the business. We delivered above market yield growth, improved cost efficiency and raised the bar on service quality, all of which strengthened our competitive position. And our investments in capacity and technology are making our network smarter and more agile while leveraging our scale. We built XPO to drive results in any environment and we intend to keep outperforming the industry with sustained long term margin expansion.

Now I'm going to hand the call over to Kyle to discuss the financial results. Kyle, over to you.

Thank you, Mario, and good morning, everyone. I'll take you through our key financial results, balance sheet and liquidity. Revenue for the total company was $2,000,000,000 down 3% year over year, but up 2% sequentially from the fourth quarter. In our LTL segment, revenue was down 4% year over year and up 1% sequentially. The majority of the decline was related to lower fuel surcharge revenue tied to the price of diesel.

Excluding fuel, LTL revenue was down 2% year over year and up 1% sequentially. On the cost side in LTL, we drove another significant reduction in purchase transportation expense. Our expense for third party carriers decreased by 53% compared with the prior year as we insource more of our line haul runs. This equated to a reduction of $41,000,000 in the quarter. We also utilize our labor more productively, resulting in a 1% improvement in hours per shipment in the quarter.

Notably, we're able to hold our total cost salary wages and benefits at a similar level to last year's first quarter, despite inflation. To do this, we've been utilizing the productivity tools in our proprietary technology. These capabilities are unique to XPO and will be increasingly valuable as our network grows. On the equipment side, we achieved a 5% reduction in maintenance cost per mile, primarily due to our purchase of new tractors for our fleet. We expect this cost to track lower in the future as older units are retired.

LTL depreciation expense increased by 10% or $7,000,000 reflecting the priority we place on making ongoing investments in our network. Next, I'll cover adjusted EBITDA starting with the company as a whole. We generated adjusted EBITDA of $278,000,000 in the quarter, down 3% year over year. Within that number, adjusted EBITDA for the LTL segment was $250,000,000 down 2%. Our strong yield growth and cost efficiencies in the quarter were mitigated by the operating environment in the form of lower fuel surcharge revenue, tonnage and pension income.

But even with these constraints, the underlying trends in the business continue to gain momentum. In our European Transportation segment, adjusted EBITDA was $32,000,000 for the quarter and adjusted EBITDA for the Corporate segment was a loss of $4,000,000 Returning to the company as a whole, we reported first quarter operating income of $151,000,000 up 9% year over year. And we grew net income by 3% to $69,000,000 representing diluted EPS of $0.58 On an adjusted basis, our EPS for the quarter was zero seven three dollars compared with $0.81 a year ago. And lastly, we generated $142,000,000 of cash flow from operating activities in the quarter and deployed $191,000,000 of net CapEx. Moving to the balance sheet, we ended the quarter with $212,000,000 of cash on hand.

Combined with available capacity under our committed borrowing facility, this gave us $811,000,000 of liquidity. And our net debt leverage ratio at quarter end is 2.5 times trailing twelve months adjusted EBITDA. This is an improvement from 2.9 times in the first quarter of twenty twenty four. In February, we successfully repriced our $1,100,000,000 term loans and refinanced our ABL revolver into a new security cash flow facility. This extended the maturity of our revolver to 2,030 and stabilize our liquidity with a constant $600,000,000 of availability, while providing long term capital structure flexibility.

While we remain committed to investing in initiatives that support earnings growth, we expect our lower CapEx profile to generate a higher level of free cash flow this year. This dynamic over time should provide us with greater flexibility to return capital to shareholders. Recently, we announced an authorization by our Board of Directors for the repurchase of up to $750,000,000 of our common stock. We expect to begin opportunistically repurchasing shares this year with our excess cash. Now, I'll turn over to Ali, who will cover our operating results.

Thank you, Kyle. I'll start with a review of the first quarter operating results for our LTL segment, where we executed well in a soft freight market. Our total shipments per day were down 5.8 in the quarter compared with a year ago, but with an important underlying trend. We generated volume growth in the mid to high single digits in our local channel, which is a key area of focus for us. We're accelerating our market share gains with these high margin customers through targeted sales initiatives and a strong value proposition.

With weight per shipment down 1.8% in the quarter, our tonnage per day was down 7.5%, which largely tracked the seasonality. This outperformed the industry as a whole. On a monthly basis, year over year, our January tonnage per day was down 8.5%, February was down 8.1%, and March was down 6%. Looking just at shipments per day, January was down 6%, February was down 6.1%, and March was down 5.4. For April, we estimate that tonnage will be down 5.7% from the prior year.

Our pricing was robust in the quarter, and again, we delivered above market yield growth. On a year over year basis, we grew yield ex fuel by 6.9% and revenue per shipment by 5.2%. Importantly, we accelerated our year over year yield growth from the fourth quarter as well as on a two year stack basis. Our revenue per shipment has improved sequentially for nine consecutive quarters and we expect both revenue per shipment and yield to improve sequentially through the rest of this year with ongoing pricing momentum driven by our service quality and premium offerings. These are all key drivers of our margin expansion opportunity and we're steadily enhancing them as part of our LTL growth plan.

In the first quarter, we sequentially improved our adjusted operating ratio by 30 basis points to 85.9%, which outperformed normal seasonal trends. We outperformed on margin through a mix of yield growth, cost efficiencies and productivity gains and by leveraging our proprietary technology to enhance the contribution from each of these levers. Turning to our European business, we delivered solid progress despite a challenging macro environment. We increased revenue by 2% year over year on a constant currency basis for the fifth consecutive quarter of growth. We also grew adjusted EBITDA by 19% sequentially from the fourth quarter, outpacing seasonality.

And in some key geographies like The UK, we increased adjusted EBITDA by double digits versus the prior year, showing continued strength. Another positive indicator is our sales pipeline in Europe, which grew by high single digits in the quarter. Customers are increasingly responding to our offerings, putting us in a strong position to continue outperforming the market in any macro environment. Before we go to Q and A, I'd like to summarize the major initiatives that powered our first quarter performance and the ongoing momentum in our LTL business. First, we're continuing to deliver above market pricing growth underpinned by strong service quality.

Our premium service offerings and our success with the local channel are also key to our results and these initiatives are in the early stages of their potential. At the same time, we're optimizing our cost structure by reducing third party line haul costs and enhancing productivity. We see a long runway for further efficiency gains across our network. Together, these drivers have created a large margin expansion opportunity and our execution gives us the ability to capture that opportunity regardless of market conditions. Now, we'll take your questions.

Operator, please open the line for Q and A.

Thank you. We'll now be conducting a question and answer session. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

As a reminder, we are asking participants to limit themselves to one question and one follow-up and re queue for additional questions. One moment please while we poll for questions. Our first question is from John Chappell with Evercore ISI.

Thank you. Good morning, everyone. Ali, just kind of the obvious first question. In January or early February, you gave a full year guide of flat tonnage and 150 basis points of margin improvement. Things have changed quite a bit since then.

So if you can just provide an update there, if you're willing. And as part of that second quarter, I think typical seasonality is somewhere around two fifty basis to 300 basis points of OR improvement With the April tonnage down 5.7%, what are you kind of anticipating for that sequential move this year?

Hey, John, this is Mario. So when you look first at full year, this is the fluid environment and it's tough to predict what the macro is going to do and what the demand environment will do in the back half of the year. But based on our performance year to date, we do expect to deliver 150 basis points of full year margin improvement. And this is even with full year tonnage being negative on a year on year basis relative to our initial assumption that volumes would be flattish this year. And there's a few reasons for that.

One is yield performance has been excellent. Our pricing initiatives are gaining momentum. They're trending ahead of expectations. We'll talk about the Q2 yield outlook here. We're also managing costs very effectively.

I mean when you look at the line haul in sourcing, we have accelerated that. We were down to 8.8% in the first quarter, '50 '3 percent reduction in PT costs, and we expect that to further be reduced in the back half of the year as we continue to drive that initiative. And we're managing our labor very effectively. I'm very proud of how the operating team executed in the first quarter against a soft backdrop where tonnage was down. We were able to improve productivity on year on year basis by 1%.

Now let's say the macro gets more negative from here and things do soften, and let's say the year is down mid single digit on tonnage for the full year, we still expect to improve OR by about 100 basis points for the full year. And overall, that would be a really strong year for margin improvement because keep in mind that we have the toughest comp in the industry. We were the only carrier improving operating margins in 2024 as well. Now when you look at the second quarter, we also expect another strong quarter for margin performance in Q2. Typical seasonality for us is a sequential improvement of two fifty to 300 basis points of OR improvement sequentially Q1 to Q2.

And again, it's a dynamic environment. So but based on what we have seen so far in April our execution, we do expect to be at or above the high end of that range, outperforming seasonality. And that's also driven by our continued strength in yield and effective cost management as well.

Great. That's super helpful, Mario. Just super quick follow-up. You mentioned the 30% excess store capacity giving you the leverage to gain share in an upturn. In that scenario that you laid out where maybe tonnage is down mid single digits, obviously, things get worse.

Are there other variable or semi variable cost levers you can pull, to manage that? And would capacity remain at that type of excess level?

Yes. So high level, when you look at real estate capacity in our network, it does come at a low cost. So real estate is usually one of the lowest cost categories in LTL. It's in the low to mid actually, low to mid single digit type percentage of revenue is what that cost structure would look like. So our goal is not necessarily to just go fill terminals with freight if they don't operate at a good OR.

Our goal is to make sure we are onboarding profitable freight based on high quality of service, based on new offerings we're offering customers and being very disciplined in what we are getting into our network. So the way we think about it, even with and again, this is if the macro softens from here and demand does deteriorate, keep in mind that two thirds of our costs are variable costs, and then we would manage that like we've done over the last year plus. We're going to flex labor. We're to use our proprietary technology to execute and make sure that we are using a number of hours in the field commensurate with what we're seeing in the volume environment. And similarly, on the linehaul side, as we insource more linehaul, we are actually becoming more efficient and we it's costing us less.

Even with truckload rates being depressed, when we move freight with our Road Flex operation, we're paying less per mile than we would with a third party carrier. We get about 56% more physical space because we're moving two twenty eight feet pubs as opposed to a 53 feet pub. So that's going to be also further accretive here in the as we head into the back half of the year. So we're controlling what we can control, and we're doing it very effectively, and we expect to do that regardless of what the environment throws our way.

Our next question is from Fadi Chamoun with BMO Capital Markets.

Yes, morning. Just one clarification. Is the 100 basis point improvement in OR this year based on 5% decline in volume. I think I shared the exact number, if you can repeat. And my question though is, I wanted to get your perspective on the volume story for kind of the LTL.

We, you know, there's an estimate that we're down somewhere around mid teens in volume versus where we were at the peak of the cycle. Has this all been a result of the underlying demand weakness from your customer base? Or have you seen significant share losses to other modes, specifically truckload?

Good morning, Fadi. This is Ali. I'll take the first part about the full year margin outlook and then I'll pass it to Mario to talk about some of the industry volume dynamics. As it relates to the full year margin outlook, we would expect to deliver 150 basis points of OR improvement this year with volumes down on a year over year basis. To the extent that the macro worsens and volumes are sub seasonal to a greater degree as we move through the year and are down somewhere in that mid single digit range for the full year.

As Mario noted, we would still expect to improve OR in that scenario by about 100 basis points for the full year.

And Fadi, when you look at the overall industry volumes, so if you look at both public and private carriers and you look at where volumes were at pre COVID to where they are now, they have declined in, call it, in that mid teens range. We estimate it to be in the 15% to 16% range of decline in demand. And if you look post COVID, actually 2021 was the peak after that. And 2021 was slightly lower than 2018, '20 '19, right before COVID. Now if you look at that trend from 2021 through 2024, there were a lot of supply chain changes and disruptions that happened over that period of time.

If you recall, right after the peak of COVID, there was a shortage of chips that led industrial companies to ship less goods. After that, there was a glut of inventory with retailers where they have to work their way down through it. And after that, there was a decline in industrial demand. I mean if you think about it, the ISM manufacturing index has been in a contraction type space below 50 for almost two point five, three years now, and which is commensurate with what we have seen with the freight recession so far. Now a lot of that decline has been driven by underlying demand being softer, specifically in industrial sector here in The U.

S. Now if you look at where things go from here or the other modes of transportation, on the truckload side, we don't see a lot of direct conversion from LTL to truckload. I always give the example of if you look at how much we how much the rates for truckload are, are about $2 a mile, give or take. Our average length of haul is approximately eight fifty miles. So a corresponding truckload shipment is about $1,700 to move that shipment.

When you look at our average revenue per bill last quarter, it was $385 You're talking 4x above that number. 4x, 5x above that number is where the truckload rates are at, even in the depressed environment they are in. Sometimes I get the question, well, Mario, look at heavy LTL, what's the conversion point? To give you an example, in our network, because usually when you go up on the weight scale, your rate per 100 weight comes down, it's about 15,700 pounds, and that's less than 0.5% of our shipments, that's 20 or 30 basis points of our total shipment count. So there is conversion, but it's a very small number.

And whenever truckload rates recover, you will see that coming back through. Now also sometimes I hear the question, well, what about truckload consolidation? That has always happened. I mean, have used TMSs for decades now. And what TMSs do is that they look at if you don't have a service requirement and you can combine things into a truckload, you will combine it.

And with truckload rates being lower, there might be more combinations into truckload happening. But that's, again, when truckload rates goes up, it's going to come back to LTL as well. So we don't see any structural changes in how LTL freight is being moved across the country.

Okay. This is great. And so basically, because that 15%, sixteen % seem to have underperformed like industrial production quite a bit over that timeframe. But you don't think this is a share like significant share loss or this is an opportunity potentially for the industry to see that volume come back when, things turn the corner from an industrial production perspective.

Yes. And I'll tell you, Paddy, we're excited about this outlook because if you think about it, this industry has been capacity constrained for a long time, and you haven't had any meaningful amount of capacity being added. Even when you look at us and other carriers adding capacity, we are just recycling the capacity from yellow that used to be in operation a short two years ago. So whenever those cycles start turning and you start seeing more freight going into LTL and truckload in every mode, you'll see truckload rates going higher, you're going to be the cycle of all cycles in terms of increases in volume, and you don't have enough industry capacity to handle that. So that's the piece that gets us excited in the future.

Now keep in mind, we're delivering the kind of numbers we are in a very soft freight market. Now imagine what's going to happen in the context of an upcycle where you have 30% excess door capacity, you have an excellent service product, we have a team that is executing really well out there, and you couple that with customers who are happier and happier with the work that we are doing, we get really excited about the next up cycle. Although it's tough to see now with all this tariff noise that we're seeing.

Our next question is from Ken Hoexter with Bank of America.

Hey, great. Good morning. Mary, I want to hit on the pricing side, right? Just the market doesn't occur in a vacuum and you've done well. But we're hearing from others that have reported some pretty aggressive kind of pricing story in the market.

Can you talk a little bit about what's going on particularly in the local SMB side? And then Ali, just to clarify, I'm getting a lot of questions. Just if you're down 7.5% in tonnage in first quarter, trending down, call it, mid single digits in 2Q, I think just it would be helpful to clarify that comment. Because does that mean you need just flat performance for the back half of the year to be better than mid single digits? Does it have to be up to get to I just want to understand that your comment on getting to the 100 basis points of improvement versus the 150 you were reiterating?

Again, I'll first talk on the overall industry pricing side, and then I'll turn it over to Ali to talk about the volume expectations here and what we're seeing, what we saw in April and beyond. But if you look at the pricing side, we continue to see a very constructive pricing environment for LTLs. Now for us specifically, we if you look at where we our starting point, if you compare our pricing structure to best in class, we were approximately when we started our plan a few years ago, about 15 points lower on price. And what we half that delta was driven by their better service product for a longer period of time, and the other half was made out of two thirds or 5% were SSOTIO revenue or premium services. And then about 2.5 points out of the 15 were from a mix dynamic of small to medium sized businesses having a more accretive margin.

So if you think about it over the last few years, we have been able to outperform the market by approximately, call it, two to three points on price. Now one point of that is catching up on the seven, eight point differential on service driving better price. And we have an eight year runway to get there. So if you think about it, over the last year, this year as well, we're pricing, call it, a point above what we typically would price at, and we're getting that because of the enhancements of the service product. The second category is that all these accessorials.

When we started our plan, 9% to 10% of revenue were accessorial revenue. Our goal is to get to 15 points. And now as of this last quarter, we were at 11 points as a percent of total. So we got an incremental point in pricing driven by us onboarding higher value services that our customers are asking for. These are things like trade shows and retail store rollouts and must arrive by date.

So these are all incremental services that the customer asks for, and obviously, we bill them for it. And the third component is growing in the small to medium sized business segment. In that segment, I'll tell you, Ken, it's easier said than done. I mean, to grow in that segment, you need excellent service because these are smaller businesses. They might be shipping five shipments a week, 10 shipments a week.

The shipment represents their brand. They want it to be picked up on time, delivered on time, delivered damage free every single time. And with the improvements in service we've had, we've had a tremendous amount of success in that channel. The second component as well is that we if you take a step back, we've added 25% more local sellers to our team over the last few years. And it takes after you hire a local seller, it takes you another full year to get them fully ramped to productivity as well.

So this has been obviously in the works for us for a number of years. And our local sales force is truly doing a tremendous job out there. Just to give you an example, in the first quarter, we grew that channel in the mid to high single digits from a tonnage perspective, and we accelerated that to double digits here in the month of April. So we're seeing tremendous progress in that segment of business and we expect that to be the case for the years to come for us to get to the 30% as a percent of total being local accounts.

And then Ken, when you think about the volume outlook for the year, if you just look at the first quarter specifically, tonnage was down 7.5 points on a year over year basis. However, we did see the trend improve as we move through the quarter. January was down 8.5 points year over year and then March and April were down closer to that 5% to 6% range. Now if you look to the second half of the year, Ken, we do have easier comps versus the first half of the year. So volume should gradually improve as we move through the year given that comp dynamics and also following normal seasonality.

Now to the extent that we see the macro soften in the back half of the year and volumes remain down mid single digits in the back half, even against those easier comps, that would be more reflective of a sub seasonal demand environment in the back half of the year. We would still expect to deliver 100 basis points of OR improvement in scenario. So regardless of how we look at it, we're going to deliver a very strong year of margin improvement this year on top of being the only LTL carrier to improve margins in 2024 as well.

Helpful clarification. And then just for a follow-up real quick one on Service Mario. Claims went up a touch, I guess 0.2 to 0.3. Is there anything, I guess, since you're mentioning Service is so important, is there anything on that or led to that? And Ali, in that volume outlook, is that including the tariff kind of impact in that return to normality?

Or do you see any kind of air pocket coming from that? Thanks, guys.

So again, on the damage claims ratio, so it's been relatively consistent with where we've been. We were in the 0.2% range for the quarter, but we just called the round up to the 0.3%. Now when you look at the underlying damages in the quarter, so that's a KPI where when we deliver a pallet to a customer, they can take an exception of a damage. So it's a real time KPI of how our damages are doing. And they have been the best of any other quarter in the company's history in the first quarter.

As you know, we've made tremendous progress in improving our quality of service. And it's not going to be linear. It took best in class ten years to go from a 0.7% to 8.1% claims ratio and took us a few years to go from a higher number to where we are now. And our goal is to get to having no claims in our network. That's the ultimate goal, and we're making tremendous progress on that front.

And Ken, on the volume outlook for the second half. Obviously, there's a lot of uncertainty, and so it's difficult to predict the impact of the tariffs. But generally, way you should think about it is the 150,000,000 reflects what we've been seeing through the first four months of the year to the extent again the macro gets softer, tariffs start to have an impact on the broader economy, trends turn more sub seasonal for us from a volume perspective. Again, that would be more supportive of the volumes being down in that mid single digit range for the year and closer to about 100 basis points from a margin improvement perspective.

Our next question is from Scott Group with Wolfe Research.

Hey, thanks. Good morning. Mario, I think you just said you want to get local to 30% of the revenue. Where is it today? And is there any way to just think about like what the margin is on the margin premium on local versus national and how that if that gap's widening or shrinking today?

Yes. So we are today when we started our plan, Scott, we were at about 20% of total was the revenue of locals. We're now up to the low to mid-twenty percent range. And our goal, obviously, is to keep on making meaningful progress. As I mentioned earlier, we've added about 2,500 new local customers in the first quarter, just to kind of give you an idea on the cadence.

And again, we accelerated tonnage growth in April in that channel to double digit compared to mid to high single digit in the first quarter. Now if you look at pricing differential, the margin differential between that channel and the larger accounts have been fairly consistent through the years. Typically, we price that channel based on an annual price that goes through a normal GRI process once a year typically. And the margin spend has been relatively consistent.

And then maybe just a quick one, Ali. The tonnage down 5.7% April, how is that just on a seasonality like versus seasonality? And then if there's any way you could say, I think you said 300 basis points of sequential improvement in margin for the quarter. What's the volume assumption for the quarter assumed in there?

Sure, Scott. So again, was down 5.7% on a year over year basis and that was largely in line with normal seasonality relative to the month of March. As I noted, we did see volume trends improve throughout Q1 on a year over year basis and that momentum carried into the month of April. Now when you think about Q2 as a whole, obviously tough environment to predict. But if you look at how tonnage has historically played out throughout the second quarter and apply those trends through the rest of Q2, that would imply full quarter tonnage being down a similar range to the month of April on a year over year basis.

Our next question is from Chris Wetherbee with Wells Fargo.

Yes. Hey, thanks. Good morning, guys. So So maybe just a follow-up on that. I know this is difficult, but as you sort of look and talk to the customers in the portfolio, did you get a sense of maybe what the tariff impact could be, I guess, relative to what that normal seasonality is for 2Q?

Have you picked up anything meaningful that sort of tells you that you can perform close to that level or maybe there is going to be sort of expected underperformance in the month of May potentially with a bounce back in June? If there's any kind of color or clarity you've gotten from customers, it

Yes. You got it, Chris. Well, if you look at it, it's tough to tell because these are unprecedented times. And it's tough to tell what those tariffs will have in terms of impact on what domestic freight moves would look like. Obviously, as an LTL carrier, we're more exposed to internal moves within the country and not external to internal or imports as a whole.

Now we said, we do a survey with our customers every quarter to get their feedback on what they are hearing. And we just finished the end of Q1 survey. And what we heard at the towards call at the April is that customers are not expecting a the majority of customers are expecting to see a flattish demand in the back half as opposed to what they were a quarter ago, where the majority were expecting an acceleration of demand in the back half. So we're hearing a more cautious tone from the customers. We did see both in Q1 and in April, the industrials slightly outperformed the retail segment.

And keep in mind, that's more than twothree of our freight is industrial freight. And that outperformed slightly the retail sector there as well. Now looking forward, it's very tough to predict what's going to happen. And I'll give you just some perspective. We haven't heard a lot of pull forward, so we haven't seen that in meaningful ways from customers.

But customers generally are falling in three camps. Some customers are in a wait and see type pattern. Some customers are still importing goods as they always have. Some customers did pull forward. And then some customers are redesigning their supply chain to get more product sourced or built locally.

I mean, just to give you an example, we I recently met with a large customer, industrial company that produces product in The U. S. And Mexico and Canada. And now they are moving more of the manufacturing here to Texas in The U. S.

And we used to only handle the outbound freight out of that distribution facility. Now we're handling both inbound and outbound freight, where the inbound is for parts and raw materials, and then the outbound is for the finished product all the way to the customer. But so we're seeing a wide variety of behaviors from customers. And it's tough to predict what the next few months will do or what the back half will do based on these dynamics. Now if you look at the month of April, as Ali said, that was in line with seasonality.

For us, January was down 8.4%, February was down about 8%, March was down around 6%, April here is down 5.7%. And our comps do get easier as we head into the back half of the year. So we'll see what the market has in store, but we're working with our customers closely. And our goal is to provide solutions for them whenever they need them.

Okay. That's helpful. I appreciate the color there. And quick follow-up. You mentioned in the prepared remarks the buyback.

Obviously, you guys have been focused, I think, also on deleveraging over time, but maybe with where the stock is, this has become a bit more attractive. Can you talk a bit about what the opportunity you might see kind of capital available for buybacks as we go through 2025?

Yes. Chris, when you think about the buybacks, so we had the authorization come out at the end of the first quarter. We had a $750,000,000 authorization. And when you think about capital allocation for us, we're looking in three ways, right? Our focus is going to be continuing to invest organically, and that's CapEx for the business.

Then we're going look to continue to delever and get to our long term goal of one to two times. And then when you think about excess cash, that authorization gives us the flexibility to seek the highest return of capital for our shareholders. That's really what we're looking at. So there's no specific timeframe on that repurchase or no specific amount, but we'll be opportunistic with what the market affords us.

No. I am here. Good morning, guys. Wanted to ask two quick questions. Pricing side, if we remove the push into local and premium services, how would the contractual renewals look on a sequential basis?

And the second question, we've heard a bunch about Amazon maybe pushing back a little bit into the LTL space going back into their fulfillment centers. UPS has announced they're getting back in the ground with freight. How much of a threat to the industry going forward is that? Or is this just around the edges? Thanks.

Yes, it's Kyle. I'll start and I'll hand it back to Mario. So I think to directly address your question, when you think about renewals for us, renewals were up mid to high single digit range for the quarter. And that was an acceleration. And it reflects the confidence we have in delivering above market yield performance through the year.

And when you think about renewals, you really have to look at the flow through from those renewals. And in the first quarter, yield was up 6.9%, again reflecting the strong renewals and rev per ship was up 5.2% with the delta being weight per shipment. So a very strong showing for us there. And when you think about how those renewals will impact us here in the quarter, we think for Q2 yield ex fuel is going improve sequentially from the first quarter and we expect to see it through the rest of the year. So on a year over year basis, we expect Q2 yield ex fuel to be up in a similar range year over year basis to Q1, and that assumes a similar weight per shipment dynamic on a year over year basis in Q2 versus Q1.

XPO (XPO) Q1 2025 Earnings Call Transcript

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