XPO Logistics CEO on warehouse workers: They were ‘heroes’ who kept the supply chain moving in March

XPO Logistics CEO Bradley Jacobs joins Yahoo Finance Live to break down why the company is seperating its logistics and transoprtation businesses and discuss how the pandemic accelerated the e-commerce industry.

Video Transcript

BRADLEY JACOBS: So we did an honest assessment of what the multiple-- why was the market giving us this lower multiple, just very substantially. And we heard two things. This is what we learned. We learned the company's too complicated. You need to simplify it. And you need to get investment grade. And if you do those two things, the amount of demand for the stock would be vastly more.

And in addition to the financial benefits, there's a lot of operational, business, commercial benefits of having two pure plays, very focused organizations, that have currency that can be used for compensation, currency that can be used for M&A.

So there's a lot of good rationale for doing this right now, having one company that is a leader in transportation, moving things from point A to B-- it's an outsourcing play. It's a tech play-- and another company that's the second-largest contract logistics company in the world, things that happen in warehouses, that's smack in the middle of this massive e-comm explosion.

Because these days, customers want more. They want shorter lead times. They want faster fulfillment. And retailers just aren't set up for this, by and large. And even many e-comm companies can't do it as fast as we can do it. So they outsource it to us.

And it's also plant automation, because if you go to our warehouses, you'll increasingly see more and more robots, because it's more and more automated. And customers want to outsource to companies who can do that.

- Brad, I've watched you build this company from the ground floor through a series of acquisitions. Can you just isolate for investors how much you think that logistics business could be worth on public markets as a standalone company?

BRADLEY JACOBS: Well, I can tell you what the markets today value our competitors. So if you look at contract logistics, there really is no pure play contract logistics, but the four ones that have the most amount of contract logistics in them are DHL, Kuehne+Nagel, Clipper, and DSV. And they all trade for around 15 times EBITDA.

And then when you look at the transportation side of the business, the LTL business-- the best two competitors to compare us to an LTL, where there are very clearly defined pure plays, are Old Dominion, which trades at 19 times EBITDA, and Saia, which trades at 12 times EBITDA. Then on the brokerage side, it would be Robinson, C. H. Robinson, the biggest truck brokerage company in the world. We're number two. They trade at roughly about 15 times EBITDA.

So here are all these numbers. They're all double digits, well into the teens. So we do think, by separating the companies out, investors will be able to understand the company better. They'll understand the superior margins, growth profiles, return on capital that we have, and we'll get-- I hope we will get at least those kind of multiples. Having said that, if we do, the stock price would be vastly higher than it is right now.

JULIE HYMAN: Brad, it's Julie here. And just to further explain for our viewers, in case they don't know, LTL stands for Less Than Load, which is when you have smaller bundles of things that you're putting together to fill up one full truck.

There's a lot of those trucks moving around right now, because as you mentioned, there is a boom in e-commerce right now. It's going into a very busy holiday season. And already, some of the big shipping companies like UPS are warning about potential delays. They're putting certain limits on their retail clients. What are you experiencing now from your perspective?

BRADLEY JACOBS: Well, this was the mother of all peaks. It's not only the mother of all peaks, it's an extended peak. So usually peaks are very specific for a few days. This is dragging on and on.

So it's an interesting time. There's a lot of bad things going on in the world with, still, the COVID crisis still happening. But the industry's coming back. And we're seeing that in our volumes. We're seeing that in our LTL business. Delivery times are OK. Delivery times are OK. So I expect it to continue that way to the end of the year.

MYLES UDLAND: Brad, it's Myles here. And you mentioned delivery times are-- now, when you go back to the spring, and I mean, everything kind of froze for a variety of reasons, what kind of learnings do you think that you as a company in the industry had at large with that sort of surge? Or was it the kind of event where we hope there's only one pandemic, and we're not going to worry too much about what did or didn't get out the door in a timely fashion in late March?

BRADLEY JACOBS: Well, I actually credit the transportation industry a lot for, first of all, continuing to go to work when most people were working from their home or not working. And our truck drivers kept driving, and our warehouse workers kept picking and packing, and our LTL workers kept going to the dock every day, at risk. And we mitigated that risk by taking very extreme measures to protect the safety, the health of our employees. But still, they were right on the front line.

And I do believe, after health care workers, these front-line workers in the supply chain should be towards the beginning of the queue for the vaccine to come out. Not us corporate people, but the people in the front line, in the field. They really were heroes during this whole pandemic. And they kept the supply chain moving, not just our company, but our competitors, too.

People did get all their PPE. People did get their food. People did get their supplies. So I feel good and proud about our industry. I think it really stood tall during this year, in a very, very challenging and strange year.

- Brad, for those not familiar with XPO Logistics, how are you going to play in the delivery of a COVID-19 vaccine?

BRADLEY JACOBS: Well, companies producing the vaccines are our customers. All the big pharma companies. Our Expedite line of business is transporting vaccines the last several weeks in temperature-controlled trucks. And there's a big secondary market in vaccine-related freight, not the vaccines themselves, that we've been benefiting from. So think syringes, saline, Styrofoam packaging, dry ice, refrigerant, temperature-controlled packaging materials.

So this is a-- look, rolling out several billion doses of anything is a big logistical up-burst. There's a lot of activity as a result of that. It's already started, even though the official rollout hasn't happened, a lot of practice dry runs going on.

So this is a good thing for our industry. It's a good thing for our country. And it's a good thing for the industry as a whole. I believe, over the next few months, once we get past the unfortunate tail end, with hopefully the tail end of the pandemic, I think this rollout of the vaccine could be right up there with maybe one of the most important accomplishments of humankind. I really do.

- Yeah, absolutely. Certainly critical that we get this. We'll leave it there for right now. XPO Logistics founder and CEO Bradley Jacobs, good to see you. Good luck this holiday season, and good luck with the split. We'll talk to you soon.

BRADLEY JACOBS: Thank you.