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RXO chief sees signs of restocking activity in 2nd half

CEO Drew Wilkerson of transport company RXO Inc. said Wednesday that customers have told him restocking activity should resume in the second half of the year after several quarters of destocking bloated inventories.

Wilkerson said the conversation with customers has shifted from where it was six to nine months ago, where much of the discussion centered on destocking. As a result, RXO (NYSE: RXO) is “positioning ourselves for the inflection,” Wilkerson told analysts.

Restocking initiatives would help boost brokerage activity, which for many companies today is weak. The tough macroenvironment “separates the haves from the have-nots,” Wilkerson said.

One exception is Charlotte, North Carolina-based RXO. Shares spiked more than 8.6% in an otherwise down day on Wall Street as the company posted solid fourth-quarter results — its first as a private entity after being spun off last November from XPO Inc. (NYSE: XPO) — and offered encouraging commentary about the first quarter.

Wilkerson said January was a strong month for the company and that Q1 volumes should be equally robust. 

Gross margins in Q4 came in at 19.6%, up 250 basis points year over year (y/y). Gross margins for freight brokerage, RXO’s primary business, approached 18%, a 290 bps y/y increase. Brokerage volumes in the quarter rose 4%. The company reported adjusted diluted earnings per share of 28 cents in Q4 on revenue of $1.1 billion. The EPS figure beat estimates by 5 cents a share.

Revenue for the same period of 2021, when RXO’s businesses were still part of XPO (NYSE: XPO), was $1.3 billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $64 million from $77 million in the year-earlier period. Adjusted EBITDA margins dropped 10 basis points to 5.7%. The company said it was pleased with those results given the difficult macro environment.

Contract revenue per load in the quarter fell 25%, with contract loads accounting for 75% of the business. Wilkerson attributed the revenue-per-load decline to pronounced weakness in spot market volumes and rates. Contract rates, which typically lag spot rates by six to nine months, are expected to decline by 10% for the full year. Another factor was a reduction in average lengths of haul for RXO’s shipments.

RXO didn’t call the top or bottom in rates during the last cycle, and it has no plans to do it here, Wilkerson said. He said RXO is not using the price lever to take market share. “We price in line with the market,” he said.

Approximately 87% of loads were created or covered digitally, with the RXO Drive app downloaded more than 920,000 times, a 45% y/y increase. Wilkerson said there is a “lot of green space” to generate digital business with owner-operators.