XPO Logistics has announced financial results for the first quarter 2019. First quarter revenue was $4.12 billion, compared with $4.19 billion for the same period in 2018. Net income attributable to common shareholders was $43 million for the quarter, compared with $67 million for the same period in 2018. Diluted earnings per share was $0.37 for the quarter, compared with $0.50 for the same period in 2018. First quarter 2019 financial results were adversely impacted by: a reduction in business from the company’s largest customer; foreign currency exchange; higher interest expense year-over-year, partially offset by share repurchase activity; and a higher effective tax rate of 27% in 2019, compared with 0% in 2018. 

Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $59 million for the first quarter 2019, compared with $81 million for the same period in 2018. Adjusted diluted earnings per share, a non-GAAP financial measure, was $0.51 for the first quarter 2019, compared with $0.61 for the same period in 2018. Adjusted diluted EPS for 2019 reflects a higher tax rate in the first quarter 2019, compared with the same period in 2018.  
 
Adjusted net income attributable to common shareholders and adjusted diluted earnings per share for the first quarter 2019 exclude: $13 million, or $9 million after-tax, of restructuring costs, primarily severance; a non-cash charge of $6 million, or $4 million after-tax, related to the impairment of customer relationship intangibles; and $5 million, or $4 million after-tax, of debt extinguishment costs; $2 million, or $1 million after-tax, of non-cash unrealized losses on foreign currency contracts; and $1 million, or $1 million after-tax, of transaction, integration and rebranding costs. Reconciliations of non-GAAP financial measures used in this release are provided in the attached financial tables.
 
Adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), a non-GAAP financial measure, increased to $343 million for the first quarter 2019, compared with $330 million for the same period in 2018. Adjusted EBITDA for the first quarter 2019 excludes: $13 million of restructuring costs, primarily severance; and $1 million of transaction, integration and rebranding costs.
 
For the first three months of 2019, cash flow from operations was a cash usage of $96 million. Free cash flow, a non-GAAP financial measure, was a cash usage of $96 million. Free cash flow favorability was driven by lower net capex and lower bonus payments year-over-year.  
 
Financial Targets 
 
The company’s full-year 2019 targets are:
• Revenue growth of 3% to 5%, which corresponds to organic revenue growth of 5.5% to 7.5% year-over-year;
• Adjusted EBITDA in the range of $1.650 billion to $1.725 billion, an increase of 6% to 10% year-over-year;
• Free cash flow in the range of $525 million to $625 million;
• Net capital expenditures in the range of $400 million to $450 million;
• Depreciation and amortization in the range of $765 million to $785 million;
• Effective tax rate in the range of 26% to 29%; and
• Cash taxes in the range of $165 million to $190 million.
 
Effective first quarter 2019, the company excludes direct postal injection revenue from its calculation of organic revenue growth, and continues to exclude fuel and foreign currency exchange. The company ceased offering direct postal injection service in its last mile business in the first quarter 2019. The 5.5% to 7.5% target for full-year organic revenue growth equates to the 4% to 6% target issued in February 2019, adjusted for the exclusion of direct postal injection revenue.
 
The company’s 2019 targets for free cash flow and cash taxes assume cash interest expense of $275 million to $315 million. The company expects an incremental benefit to free cash flow of $125 million to $150 million from trade receivables programs in 2019.  
 
$2.5 Billion Share Repurchase Program
 
From December 14, 2018, through April 30, 2019, the company repurchased 35.2 million shares of XPO common stock at a $53.42 average price per share, for a total cost of approximately $1.9 billion.
 
The company is not obligated to repurchase any specific number of shares, and can suspend or discontinue the program at any time.
 
CEO Comments  
 
Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “In the first quarter, we delivered on expectations and beat on adjusted EBITDA and free cash flow. We also closed a record $1.1 billion of new business, up 15% year-over-year. Our sales pipeline stands at more than $4 billion of active bids – a new high-water mark for us.
 
“In our logistics segment, we generated significant growth in our e-commerce, food and beverage, consumer packaged goods and aerospace verticals. We’re using our XPO Smart labor productivity tools in our logistics operations, including the 23 contract startups we implemented in the first quarter. In transportation, we increased freight brokerage net revenue by 9.5% year-over-year and grew our net revenue margin by 420 basis points. We’re automating key touchpoints in brokerage on our XPO Connect digital platform, with large upsides to customer service and productivity. We’ve rolled out XPO Connect in Europe, and last month we launched new capabilities for last mile on the platform.”
 
Jacobs continued, “In less-than-truckload, we accelerated our year-over-year yield improvement to 3% in the first quarter, from 1.1% in the fourth quarter of 2018, while delivering high levels of service for customers. Our LTL technology initiatives are resulting in significant improvements in on-time delivery and overall customer satisfaction ratings. We’re deploying dynamic route optimization, AI-based load-building and a new linehaul bypass model, and implementing our labor productivity tools in all 290 LTL service centers.” 
 
First Quarter 2019 Results by Segment

• Transportation: The company's transportation segment generated revenue of $2.66 billion for the quarter, compared with $2.77 billion for the same period in 2018. Segment revenue primarily reflects lower freight brokerage and last mile direct postal injection revenue from the company’s largest customer, as well as the adverse impact of foreign currency exchange, partially offset by growth in North American less-than-truckload (LTL) and European transport.

Operating income for the transportation segment was $128 million for the quarter, compared with $139 million for the same period in 2018. Adjusted EBITDA for the segment was $264 million, compared with $266 million for the same period in 2018. In North American LTL, yield improved by 3% year-over-year, excluding fuel, compared with 1.1% improvement in the prior quarter. The first quarter operating ratio for LTL was 89.4% and the adjusted operating ratio was 87.6%, the best first quarter adjusted operating ratio in 20 years.
 
• Logistics: The company's logistics segment generated revenue of $1.49 billion for the quarter, a 3.2% increase from the same period in 2018. Organic revenue growth was 8.1%. Segment revenue was led by significant growth in the company’s e-commerce, food and beverage, consumer packaged goods and aerospace verticals, partially offset by the adverse impact of foreign currency exchange.

Operating income for the logistics segment was $46 million, compared with $48 million for the same period in 2018, primarily reflecting higher depreciation expense related to prior capital investments in new business wins. Adjusted EBITDA for the segment was $113 million, an increase of 0.9% from a year ago. The increase in adjusted EBITDA primarily reflects growth from existing customers and from startups in recent quarters.
 
• Corporate: Corporate SG&A expense was $42 million for the quarter, compared with $46 million for the same period in 2018. The year-over-year change in corporate expense primarily reflects a decrease in purchased services, as well as lower share-based compensation expense.