Freight Delivery Company RXO (NYSE:RXO) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 57% year on year to $1.43 billion. Its non-GAAP loss of $0.03 per share was $0.01 below analysts’ consensus estimates.
Revenue: $1.43 billion vs analyst estimates of $1.48 billion (57% year-on-year growth, 3.5% miss)
Adjusted EPS: -$0.03 vs analyst estimates of -$0.02 ($0.01 miss)
Adjusted EBITDA: $22 million vs analyst estimates of $22.7 million (1.5% margin, 3.1% miss)
EBITDA guidance for Q2 CY2025 is $35 million at the midpoint, above analyst estimates of $34.37 million
Operating Margin: -2.1%, in line with the same quarter last year
Free Cash Flow was -$17 million compared to -$4 million in the same quarter last year
Sales Volumes fell 1% year on year (11% in the same quarter last year)
Market Capitalization: $2.26 billion
“Our technology team has been working diligently to integrate the best features of the legacy Coyote technology platform into RXO Connect. Today, I’m pleased to announce a critical integration milestone – carrier and coverage operations are now happening in one system, which will enable us to leverage our scale and realize future cost-of-purchased-transportation synergies,” said Drew Wilkerson, chief executive officer of RXO.
Company Overview
With access to millions of trucks, RXO (NYSE:RXO) offers full-truckload, less-than-truckload, and last-mile deliveries.
Sales Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, RXO’s 8% annualized revenue growth over the last four years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.
RXO Quarterly Revenue
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. RXO’s recent performance shows its demand has slowed as its annualized revenue growth of 6.2% over the last two years was below its four-year trend. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While RXO grew slower than we’d like, it did do better than its peers.
RXO Year-On-Year Revenue Growth
We can dig further into the company’s revenue dynamics by analyzing its number of units sold. Over the last two years, RXO’s units sold averaged 42.6% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.
RXO Units Sold
This quarter, RXO achieved a magnificent 57% year-on-year revenue growth rate, but its $1.43 billion of revenue fell short of Wall Street’s lofty estimates.
Looking ahead, sell-side analysts expect revenue to grow 29% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will spur better top-line performance.
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Operating Margin
RXO was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.5% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, RXO’s operating margin decreased by 4.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. RXO’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.
RXO Trailing 12-Month Operating Margin (GAAP)
In Q1, RXO generated an operating profit margin of negative 2.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
RXO’s full-year EPS flipped from negative to positive over the last four years. This is encouraging and shows it’s at a critical moment in its life.
RXO Trailing 12-Month EPS (Non-GAAP)
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
Sadly for RXO, its EPS declined by 71.2% annually over the last two years while its revenue grew by 6.2%. This tells us the company became less profitable on a per-share basis as it expanded.
We can take a deeper look into RXO’s earnings to better understand the drivers of its performance. While we mentioned earlier that RXO’s operating margin was flat this quarter, a two-year view shows its margin has declined by 2.6 percentage pointswhile its share count has grown 40.8%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.
RXO Diluted Shares Outstanding
In Q1, RXO reported EPS at negative $0.03, in line with the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects RXO to perform poorly. Analysts forecast its full-year EPS of $0.11 will hit $0.28.
Key Takeaways from RXO’s Q1 Results
It was encouraging to see RXO’s EBITDA guidance for next quarter beat analysts’ expectations. On the other hand, its revenue missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 8.6% to $12.56 immediately following the results.
RXO’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.
