XPO Logistics Delivers a Roller-Coaster Ride to Wall Street

A dart from a short seller sent shares of the logistics company into a dive

XPO Logistics Inc.’s smooth ride on Wall Street is turning into a roller-coaster, with the freight and logistics company roiled by a negative short-seller report and a pullback in its earnings outlook that sent its shares into a tailspin.

On Friday, XPO announced its first-ever stock buyback, a $1 billion share purchase program that could shore up a stock that has lost nearly half its value this year and would signal confidence to investors who are already jittery as this year’s hot freight market shows signs of cooling. XPO’s share price rose 15.8% in trading Friday, to $51.55.

The Greenwich, Conn.-based company has won favor among Wall Street analysts after a period of rapid acquisition-fed growth between 2012 and 2015, when it bought 17 U.S. and European companies. XPO is now one of the largest logistics providers in North America. The company logged $15.4 billion in revenue last year from business lines that include trucking, freight brokerage and supply-chain services such as online fulfillment and warehouse management.

But the once-highflying company’s stock plunged 26% on Thursday after a report from Spruce Point Capital Management LLC that accused the company of hiding losses through aggressive accounting. The short seller criticized XPO’s roll-up strategy and said it was overly reliant on outside capital.

The drop followed a nearly 8% decline in its stock price on Wednesday after XPO lowered its 2019 guidance for growth of adjusted earnings before interest, taxes, depreciation and amortization to between 12% and 15%, from a prior range of 15% to 18%.

XPO said the Spruce Point Capital report was “intentionally misleading, with significant inaccuracies, and fails to reflect that XPO has delivered strong performance for its long-term shareholders.” The company said its long-term financial outlook remains positive and defended its accounting practices.

Several analysts following XPO said this week’s selloff was an overreaction, with some noting it came amid broader weakness in transportation stocks and mounting investor concerns about an economic slowdown.

Credit Suisse Group AG analyst Allison Landry called the timing of the Spruce Point report “convenient, with the market unease and rising risk aversion,” in a Friday research note. The short seller lobbed similar criticism at other transport stocks, she said, and the XPO report contained “the same unsubstantiated claims that we have heard before.”

Still, those criticisms may carry more weight now than they would have early in the year, when soaring freight demand and tight trucking capacity fueled record profits and double-digit rate increases for transportation companies.

That cycle appears to have peaked, with capacity loosening up as demand slows and smaller trucking companies expand their fleets. U.S. domestic freight volume slipped 5.1% in November compared with the prior month, according to Cass Information Systems Inc.,which processes freight bills. Some analysts are expecting a down market early next year, in part because companies pulled some imports forward to avoid the impact of tariffs.

A slowing economy would hurt XPO, just as it would other any other transportation company, said Jason Seidl, an analyst with Cowen & Co.

But this week’s selloff “is a lot of panic, as far as I’m concerned,” Mr. Seidl said Friday. “This company has done a very good job over the years of hitting expectations…If it’s going to grow between 12% and 15% in what people believe is a slowing economy, that’s pretty darn good.”

The changing economic environment and tumult from this week could complicate XPO’s quest, announced more than a year ago, to spend up to $8 billion on one or more acquisitions. The company has remained out of the acquisition market since its buying spree peaked in 2015. And it hasn’t reached into its war chest for new deals, saying only that it has narrowed down its targets.

Stephens Inc. analyst Jack Atkins questioned XPO’s share repurchase plan in a Friday note that called it “a knee-jerk reaction.” The company has “issued 11 million shares at $60.50 through two separate transactions since July 2017 for the purpose of M&A,” he said. “Does this effectively signal that M&A is dead for the time being?”

XPO declined to comment on the reasoning behind the buyback program or its merger and acquisition plans.

Source: https://www.wsj.com/articles/xpo-logistics-delivers-a-roller-coaster-ride-to-wall-street-11544968801


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