XPO and Spun-off Company Look to Growth Despite Brad Jacobs Stepping Back

On Tuesday, Brad Jacobs stepped onto the New York Stock Exchange podium for the ninth time, leading colleagues in a chorus of cheers to celebrate XPO Logistics' second spinoff in two years. After ringing the opening bell, XPO officially spun off its truck brokerage business into a new company called RXO. The veteran investor will serve as executive chairman of the less-than-truckload carrier and non-executive chairman of the brokerage, but the day marked the end of Jacobs' tenure as CEO since he founded the logistics giant in 2011.

In this week's spinoff, Jacobs handed daily operations of the brokerage to incomingRXO CEO Drew Wilkerson, and the remaining pure-play LTL business to incomingXPO Logistics CEO Mario Harik. The three joined dozens of other company executives at the ceremony on Tuesday, marking the end of the company's operation as a conglomerate. Over the past decade, XPO acquired more than a dozen different logistics companies, and has since spun off specialized businesses large enough to deliver independent returns for investors.

Jacobs' vision will carry on in the spun-off companies: Wilkerson and Harik said they plan to follow a long-term strategy prioritizing technology integration and shareholder value.

"I'm very confident that through these strategic actions, we will serve customers better, respond more nimbly to changing markets, and provide a more cohesive work environment," Jacobs said in an interview with Transport Dive. "This will therefore create a lot of shareholder value."

New RXO CEO says 'we will outperform the market'

Beyond managing the daily brokerage operations, Wilkerson also inherited Jacobs' outspoken confidence. On XPO'squarterly earnings callon Monday, the day before the spinoff, Wilkerson struck an optimistic tone, noting the brokerage is poised for success even as freight demand declines.

"It doesn't matter what happens in the market," said Wilkerson, a C.H. Robinson veteran. "There's a lot of uncertainty in 2023. We believe we will outperform the overall market next year."

As a standalone company, RXO expects fourth-quarter volumes to grow year over year, with gross margins holding near the 19% achieved last quarter (under XPO), even if "slightly lower." Gross profit per shipment may also decline due to the changing demand environment, but the brokerage's "consistent excellent performance proves we can gain share in any market," Wilkerson said.

Jacobs' focus on digitalization during his time at XPO helped RXO get off to a strong start. Wilkerson told investors that RXO Connect, the brokerage's online platform, added another 10,000 carriers last quarter. In the third quarter, the company created or covered 81% of digital truck brokerage volume, and despite expectations of a muted peak season, it still saw strong contract bidding activity and expects year-over-year volume growth next quarter.

To continue increasing the share of digital brokerage volume, the RXO Drive app is aimed at carriers and their drivers, Wilkerson told Transport Dive. In addition to carrier reward programs, the app guides drivers to the nearest cheapest gas stations and shows the closest Subway—which drivers voted their favorite lunch choice in a brokerage poll.

"It's things like this that are driver-friendly and make their lives easier," Wilkerson said.

XPO's growth plan as a pure-play LTL carrier

Technology will also continue to play a key role at XPO, especially underformer chief information officerHarik. Jacobs' third hire at XPO, Harik rose to president of the LTL business after leading the company's $3 billion technology strategy, which focused on integrating data analytics, machine learning, cloud computing and other capabilities into company operations.

Harik told investors that XPO added six terminals to its national network this year and expanded others, with business growing in those markets. "We opened a terminal in Atlanta six months ago," he said on Monday's earnings call. "In September, tonnage in the Atlanta market grew 38% year over year." The sales team has also grown 7% since the start of the year, and the company is on track to train 1,700 drivers by year-end.

XPO's adjusted operating ratio of 82.8% in the third quarter caught Satish Jindel's attention, calling it an "excellent number for the current period." Jindel, president of SJ Consulting and a longtime LTL industry analyst, said technology is crucial to solving the "puzzle" that each shipment and trailer presents to LTL carriers. Harik's rise to CEO highlights XPO's emphasis on technology, which could have ripple effects across the rest of the industry, Jindel said.

"Choosing Mario as CEO is the most impressive thing to me because I think he's the first LTL carrier CEO with a CIO background," Jindel said. "This should be a very interesting development."

For Jacobs, 'the hunt starts tomorrow'

Although Jacobs will retain board roles, the spinoff symbolizes the end of his decade-long chapter as a freight disruptor. "For RXO, this is a birth—this is the moment we're born," he said. "For XPO, this is the mark and validation of leadership transitioning from me to Mario. So it's a meaningful day."

Since 2011, the company built platforms for shippers and carriers, then gained market share through a series of acquisitions, most notably the 2015acquisition of Con-way Inc.. Believing its stock was undervalued relative to pure-play competitors in each segment due to a conglomerate discount, XPO spun off its Europe-focused contract logistics businessGXOin August 2021. In March, it sold its North American intermodal business. The company also plans to divest its remaining European operations, though no timeline update was provided this week.

"XPO's scale gave them this opportunity," said Patrick Yorkey, a commercial banker in J.P. Morgan's middle market banking and specialized industries group. "After the spinoff, both XPO and RXO will be large, dominant players."

On Tuesday afternoon, Jacobs posed with colleagues in front of the New York Stock Exchange building, with towering XPO and RXO banners hanging on the facade behind them. The founder of United Waste Systems and United Rentals is already thinking about the next industry suitable for creating more shareholder value. He hasn't decided on his next venture yet. "The hunt starts tomorrow," Jacobs said.