XPO Cuts Sales Outlook as U.S. Factory Slump Drags Down Freight

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(Bloomberg) -- XPO Logistics Inc. cut its 2019 sales forecast as an “industrial recession” crimped demand for U.S. freight transportation.

Revenue this year will fall as much as 4%, down from the previous prediction that the decline would be no more than 1%, XPO said in a statement Monday as it reported earnings. The company reiterated its outlook for cash profit after ratcheting up cost cuts.

The dour forecast from XPO, a major provider of short-haul trucking, transportation brokering and contract logistics, deepens concerns about the economic fallout from a slowdown at U.S. factories. Even if the U.S. and China reach an agreement to ease a tariff war, freight demand would take a few quarters for to tick up, said XPO Chief Executive Officer Brad Jacobs.

“The industrial economy has been challenging for over a year now,” Jacobs said in an interview. “We’re way past the point of figuring out if it’s an industrial recession or now. It has been an industrial recession for a while.”

The shares were little changed at $80.41 after the close of regular trading in New York. XPO has jumped 41% this year, almost doubling the return of a Standard & Poor’s index of U.S. industrial companies.

Amazon Blow

Besides the impact of weak trucking demand, XPO’s sales have taken a hit after Amazon.com Inc. pulled $600 million of business in December.

XPO announced 10 initiatives in August to add as much as $1 billion to profit by 2022 through cost cuts and efforts to win new business. The company, which has been hiring salespeople to help attract business, said its pipeline for contract wins was more than $4 billion for three quarters in a row.

The cost cuts helped propel XPO’s third-quarter adjusted earnings to $1.18 a share, outpacing the $1.04 average of analyst estimates. Sales fell 4.2% to $4.15 billion. Analysts had predicted $4.27 billion.

The Greenwich, Connecticut-based company reiterated its 2019 target for adjusted earnings before interest, taxes, depreciation and amortization of as much as $1.73 billion, with help from lower depreciation and amortization and a decrease in the expected tax rate.

But the tough freight market will linger, Jacobs cautioned.

“We look at the macro conditions as staying soft for a while,” Jacobs said. “We don’t see any events that would cause a quick, significant improvement in the economy either here or in Europe.”

©2019 Bloomberg L.P.

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