Deutsche Bank Annual Global Industrials & Materials Summit

Fireside Chat with Brad Jacobs and Matt Fassler of XPO Logistics

Conducted by Amit Mehrotra of Deutsche Bank

June 8, 2020

Amit Mehrotra, Deutsche Bank: Good morning, everybody. My name is Amit Mehrotra and I’m the transportation and shipping analyst at Deutsche Bank. We have over 500 people participating in this conference, with 370 clients and investors and over 150 company representatives. Deutsche Bank appreciates your time and hopes the next two days prove to be insightful.

I’m very happy to start the Summit with Brad Jacobs, the founder, chairman and CEO of XPO Logistics, as well as Matt Fassler, XPO’s chief strategy officer. Brad has an incredible track record of building companies from the ground up and creating tremendous equity value in the process — companies like United Waste, United Rentals and now, of course, XPO Logistics. 


To get things started, I’ll ask the obvious question first. Given the global reach of your business and the various end-markets XPO serves, please give us a sense of the current trends in the business related to COVID-19. Europe appears to have come off the bottom nicely. That’s about 40% of your business. Has that trend continued? What are you seeing in the US with respect to the economy starting to open back up?

Brad Jacobs, XPO: Your description is accurate. Europe has rebounded nicely and the US is rebounding, but so far not as much as Europe. Let’s look at it geographically and by business line. Geographically, France has come back very strongly, almost back to prior levels. Spain has recovered nicely, too. The UK has rebounded ahead of the US, but not as strongly as France and Spain. It’s definitely headed in the right direction, though.

If you look at Europe from the standpoint of business lines, contract logistics is doing better than transportation. That’s not surprising because, as the name implies, contract logistics is contractual by nature. Also, we do a lot of fulfillment business in e- commerce and food and beverages in European contract logistics, both of which are holding up very well. In European transportation, the majority of our business is in three verticals: construction, industrial and automotive, all of which have just started opening up in the last couple of weeks, so that’s behind contract logistics.

Looking at North America, our business at the end of May trended up from the beginning of May. This continued in the first week of June, so that’s encouraging. If you look at transportation by different lines of business, in the US, in brokerage, we haven’t seen much change in volumes. But our brokerage margins expanded in May because the spot market was down. So far in June, the spot market has firmed up a bit so we don’t expect to see that same margin expansion. 


Amit Mehrotra, Deutsche Bank: The acquisition in the UK has been an interesting one. It sounds like you guys, because of your scale in the UK, can dig out an enormous amount of synergy and have that payback be quite significant. Is that the right way to think about how that Kuehne + Nagel M&A can impact profitability in the back half of the year?

Brad Jacobs, XPO: Yes, some benefit in late 2020, with the bulk of it in 2021. Synergies are a beautiful thing. This transaction is something we studied in depth for a long period of time. It’s very well mapped out — what we do with it after we buy it — and, like I said, it will be highly accretive. At the same time, it was a win-win deal. It was a good deal strategically for Kuehne + Nagel, who’s refocusing on other priorities.

Amit Mehrotra, Deutsche Bank: (…) The credit and equity markets are functioning and deals are getting done. You terminated the sale or spin process. You didn’t just suspend it, and I think that language was very deliberate on the company’s part. Can you talk about why it doesn’t make sense now to revisit that? The market is opening back up. I know you probably are going to say you don’t spend any time on it, but why doesn’t it make sense to revisit that?

Brad Jacobs, XPO: It doesn’t make sense to revisit it now. We want to be a buyer when the market is soft, not a seller. We get paid to allocate capital in a way that’s going to generate the best return for our shareholders. When that means putting it into growth capex, then that’s what we’re going to do. When that means using our cash flow to pay down net debt, then that’s what we’ll do. When that means buying back stock, that’s what we’ll do. When that means M&A, whether it’s buying or selling, that’s what we’ll do. That rational flexibility has always been our strategy, and it always will be. We have to keep an open mind and be very flexible, doing whatever best serves our core mission to create shareholder value.

To read the full transcript, please click here.


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