- In a letter to shareholders on Thursday, Bradley Jacobs, XPO Logistics CEO, said 2020 will be a "lost year" for corporate earnings — for many companies, not just XPO — but that the health and safety of XPO employees must come first.
- Despite the COVID-19 crisis, Jacobs said he is bullish on late 2020 and more so on 2021. The crisis may be abating where it first started, Jacobs said, given that 90% of XPO's Chinese operations are back up and running. XPO runs about 5 million square feet of logistics space in China, he said.
- Jacobs said he is a bull in the mid-term and a "mega-bull" in the long-term. Some behaviors reshaped by the pandemic, he continued, may become economic tailwinds in the logistics and final-mile industries. E-commerce growth, which was already at a double-digit rate, could accelerate in the post-pandemic world.
Jacobs' memo, a pep talk coming from one of North America's largest transportation companies, could be the first of many such statements as the COVID-19 crisis transitions to a public policy debate about when to reopen the economy. Another ostensible reason for such a memo is to address the very real economic concerns shareholders and customers have about the global and U.S. economies, and how the company expects to thrive anew.
The crisis has altered XPO's plans for 2020.
XPO kicked off the year with a plan to spin parts of itself off and to become a "pure play" LTL company, in part to create a larger value for a company Jacobs said he believed was undervalued by the stock market. He looked at pure-play LTL competitors for possible guidance. Old Dominion Freight Lines, an LTL competitor, traded at $150.48 on Feb. 20. In comparison, XPO traded at a yearly low of $52.09 on May 31, but hit $99.11 on Feb. 20, after Jacobs had issued his memo.
But the coronavirus crisis arrived and Jacobs called his strategy off in a March 20 statement to the SEC. On Friday, XPO was trading at $57.90 per share.
Jacobs said he has been watching the worldwide COVID-19 outbreak. He told shareholders in the Thursday letter that "our major markets appear to be in the worst of it now, in mid-April." Getting back to full business might be tricky for Europe and the U.S., as "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."
"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," Jacobs said. "We think that will be in 2021, and when it happens, we have a number of things going for us." Jacobs said transportation and logistics are "inherently valuable" to all populations, and that won't change. XPO's diversity of customers, which include nearly 70% of the Fortune 500, will help the company in the upswing, he said.
XPO was built to absorb shocks, the CEO said, given recent world history.
"We weren't thinking 'seismic societal disruption' when we started XPO, but we were prepared for strong shocks to the economy," Jacobs said. "Why? Because our leadership team has lived that. The dot-com bust, the 9/11 terrorist attacks and the Great Recession all seemed crushing in the moment, but they were no match for the human spirit, and things moved forward ... There's been a lot of noise lately about what the 'new normal' may look like in the future. We believe it will look better than the old normal — better for XPO, our investors, customers and employees."