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XPO Logistics CEO: Retailers navigating ‘head scratching’ economy

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XPO Logistics Chairman & CEO Brad Jacobs speaks with Yahoo Finance Live about leaving the company, earnings, and the outlook for the economy.

Video Transcript

- XPO logistics, let's get a check on those shares. The company posted record revenue in the second quarter, down about 2% today. Though, the freight transportation company announcing a shift in leadership. CEO, Brad Jacobs, is going to be stepping down to be replaced by Mario Herrick as it moves forward with plans to separate into three publicly traded companies. And Brad Jacobs is here with us right now to talk to us about all this. Brad, it's great to see you. Hopefully I said Mario's name right, I'm going to have to learn that, obviously, as he takes-- Herrick?

- Close enough, Julie.

- OK. all right. We'll talk about that more offline. But talk to us about this decision to step down here as the company is undergoing this transformation. What prompted it?

- So every decade or so, I reinvent myself. I pass off the baton to my leadership team and I find a new industry to create outsized value for shareholders, that's what I do. So it's been about 11 years now. So I'm going to move on to conquer some new territory.

But it's important to understand the company is in great shape. So I can do it and I've got rock solid successors under me. I've got a very strong CEO for truck brokerage, Drew Wilkerson, who's been running it, basically, for the last decade. So there's really not a lot of change there. And I've got Mario to run LTL. He's been running LTL for the last year, done amazing results. Before that, he was also CIO and Chief Customer Officer. So we've got a deep bench. So everything is in good shape.

- Brad, I'll put my questions about the core off to the side for a second. Let me just follow on that. So what do you want to conquer for the next decade? What's in store for you?

- Soz, we've known each other for a long time. What do I do? I create outsized value for shareholders, that's how I define myself. So I want to find another industry where I can create outsized value for shareholders. And I don't know what industry it's going to be, I really don't know yet. I haven't spent a lot of calories on that because I'm still focused on XPO, I have work to do.

I've got to get the European sale done to pay down the leverage, to get paid on the debt more. I've got to get the spin done. And we have to make sure everyone on the management team, because we're hiring people, is rock solid on the same level, the same caliber of the people we already have.

- Brad, it is Jobs Day in America. You just said you're hiring people. So you have not slowed your hiring at all? The economy is slowing down, where does XPO stand?

- You know, it's really interesting. I was just looking at our internal stats yesterday. This is a stat that jumped off the page and I just think about it for a while. For every job requisition that we put out, we have 44% more job applicants this year than we did a year ago. And that's a big softening in the labor market. That's a lot more people coming back to work. So I'm noticing that. I'm trying to figure out what to make of that, but it's definitely something that's noteworthy.

- And what's happening in the logistics business that is different? We're hearing a lot of companies that are slowing hiring, obviously. And you would think that with the sort of there has been choppy demand for goods, I think it's fair to say, right? So that, one would think, would affect the logistics business. How are you seeing that sort of feed through to you guys?

- Well, you got to remember, you're talking to someone who just reported a blowout quarter. And all of our metrics were ahead of guidance, ahead of consensus, we had second quarter records for revenue, records for net income, for EBITDA. We had the ninth consecutive beat on EBITDA. EBITDA was up 23% year over year. We had record EBITDA margin at 12.5%. We had a new record EPS of $1.81, which was up year over year by 48%. We had 38% ROIC, we raised guidance. So forget about the whole industry, XPO is doing very, very well right now.

- Well, but I guess my question is how? What is going on and are there underlying macroeconomic trends that are actually working in your favor right now or is this XPO specific?

- It's generally XPO specific. So if you look at truck brokerage, truck brokerage, we have the best in class truck brokerage business. We've sharply outperformed the industry for quite a while, quarter after quarter, year after year. You just saw our volumes up 16% year over year in truck brokerage.

Why is that? It's because Mario and I, to a lesser extent, had the vision back in 2011 to automate that business, to utilize technology. We build what's now called XPO Connect. And that technology, we've got a big first mover advantage in that. So the industry has been growing at about 9% kegger over the last eight years or so, we've been growing at three times the industry average. We've been growing at 27%.

So it's more company-specific things than it is the industry as a whole. But the truck brokerage, you're a middleman. So you do well when there's volatility. It doesn't matter whether it's volatility of the upside, volatility of the downside, you just don't want a flat market. And it's been anything other than flat.

On the LTL business, we have two phases to LTL. Phase one of LTL the last six years, we've tried to take money out of the business. We've generated $3.8 billion of net cash since we've owned the business, and we've nearly tripled the EBITDA. And that was not by growing the top line, we were not putting lots of CapEx in in order to grow the top line. By just running the business more profitably, more intelligently, more efficiently, we've been able to deliver those numbers. Now in the second phase going forward that Mario will head, we are going to do both. We're going to continue to grow the margins, but we're also going to invest in the business and grow the top line.

- Brad, I like you also like to look forward, that's just my thing as well. What are you hearing from customers in terms of how they're planning the business in the back half of the year? Retailers, you name it, what are you hearing from them right now?

- It's mixed. Even with industry sectors, it's mixed. You have some retailers who are more bullish than others, depending on the inventory levels, but it's not just the inventory level, it's what's in the inventory. So some of our retail customers have too much inventory of some things and too little inventory of other things. And others are more right-sized.

On the industrial side, it's slightly more encouraging. There are more pallets being generated than there were six months ago and 12 months ago, but I don't have a real good-- usually, I have a strong conviction of where I think the economy is going. And I'm not always right, but I'm more often right than not. I don't have a strong conviction right now. I'm hearing so many different views and so much uncertainty and head-scratching for customers, which makes it fun, but it also makes it frustrating to plan.

- All right. Well, when you figure out what you're doing the next decade, send me a text, let us know here and break that news on Yahoo Finance. Always good to see you. XPO Logistics CEO, Brad Jacobs. Have a great weekend.