XPO Logistics founder and CEO Bradley Jacobs is never one to beat around the bush. And he sure held true to that standard in his new annual shareholder letter out Thursday morning.
“Things are difficult right now and they’ll get worse in the short-term. Then they’ll get much, much better. That’s what I see for XPO, our industry and the world,” Jacobs writes in the four-page letter.
Jacobs continues, “I’m a pragmatic bear in the short-term, because that’s the reality of COVID-19. We expect that 2020 will be a lost year for the earnings growth in our industry and most industries around the world. Our first priority is to keep our employees out of harm’s way. Second is our duty as an essential provider of transportation and logistics services. We’re helping communities get through this, so the economy can get back on its feet.”
The letter offers the first comments from a trucking industry executive on the state of economic affairs globally amidst the height of the coronavirus pandemic. And boy are they useful right now for investors struggling to make sense of it all. U.S. retail stores are closed down. Small businesses are closed down. Auto production has ground to a halt. Oil prices have crashed.
Uncertainty reigns supreme in Corporate America, which has led to severe reductions in capital expenditure and swift declines in business for transportation companies.
All of these factors have weighed on the outlook for railroads, truckers, and logistics providers such as XPO Logistics. The S&P 500 Trucking Index has declined 11% from its record high hit on Feb. 13. Meantime, the iShares Transportation Average has dropped 27% year to date.
Judging from Jacobs’ comments, the U.S. economy is nowhere near turning a corner. In fact, Jacobs doesn’t see a true GDP and consumer confidence rebound until 2021.
Like we said, the guy doesn’t mince words.
Other nuggets from Jacobs’ four-page letter:
On China, where XPO Logistics has 5 million square feet of logistics space: “Our Chinese logistics sites closed temporarily, and now they’re running again at about 90% of prior activity levels.”
On global demand trends: “From a demand standpoint, January was very good, and February and early March were reasonably good. The last half of March declined sharply as large sectors of the economy came to a near halt. Our industry is a leading indicator, so we felt the pain early, and we’ll be at the forefront of the rebound when the world returns to work. We expect that to happen in fits and starts in the back half of the year, as extreme social distancing winds down.
Timing can be tricky under these circumstances, but our major markets appear to be in the worst of it now, in mid-April. One thing is clear: there’s a beginning, a middle and an end to this. Most other countries aren’t in a position to enact the methodical return-to-work process we saw in China, so a global rebound may take longer, but it’s a certainty. Never before have so many governments, industries, individuals, technologies and scientific resources been focused on solving a single problem. It will be resolved.”
On the consumer and GDP: “Consumer confidence is very weak right now, but once testing, therapeutic drugs and a vaccine are widely available, confidence will rebound and the global mechanisms for GDP growth will resume. We think that will be in 2021, and when it happens, we have a number of things going for us.”
On XPO’s liquidity: “Our liquidity is very strong. We currently have $1 billion of cash in the bank, plus about $500 million of total borrowings available between our ABL and other bank facilities. Our next significant debt maturity isn’t until June 2022, and some of our debt doesn't mature until 2034. There will be no shortage of opportunities for us to allocate capital and enhance shareholder value.”
Programming note: Bradley Jacobs will be on Yahoo Finance’s The First Trade at about 9:30 a.m. ET.