What XPO (XPO) Said on Its Q3 Earnings Call

Key Points

• XPO delivered strong third-quarter growth: Revenue rose 12% year over year to $2.4 billion, adjusted EBITDA increased 27% to $433 million, and adjusted EPS jumped 59% to $1.70. North American LTL revenue grew 17%, while adjusted operating income reached a record $293 million.
• LTL momentum and margins continued to improve: Shipments per day rose 5.8%, yield excluding fuel increased 3.6%, and the adjusted EBITDA margin expanded to 26.4%. XPO expects fourth-quarter LTL operating ratio below 82% and raised its full-year improvement outlook to at least 250 basis points.
• Cash generation is supporting debt reduction and buybacks: XPO produced $291 million in free cash flow, repurchased $150 million of stock, and reduced debt by $100 million during the quarter. Management expects 2026 free cash flow to approach $800 million and continues to consider a sale of its European business.

XPO NYSE: XPO reported third-quarter 2026 revenue growth of 12% year over year to $2.4 billion, while adjusted EBITDA increased 27% to $433 million and adjusted diluted earnings per share rose 59% to $1.70.

Chairman and Chief Executive Officer Mario Harik said the company’s results reflected growth and margin expansion across its business, particularly in North American less-than-truckload operations. XPO’s LTL segment generated 17% revenue growth and adjusted operating income of $293 million, up 35% from a year earlier and the highest level in the company’s history, according to Harik.

LTL margins expand as volume and pricing rise

XPO’s LTL revenue reached $1.5 billion in the quarter, including a 9% increase in revenue excluding fuel. The segment’s adjusted EBITDA increased 26% to $389 million, while its adjusted EBITDA margin improved by 190 basis points to 26.4%.

The LTL adjusted operating ratio improved by 260 basis points year over year to 80.1%. Chief Strategy Officer Ali Faghri said the result outperformed typical third-quarter seasonality by more than 200 basis points.

Shipment volume supported the performance. Shipments per day increased 5.8% from the prior-year quarter, while tonnage per day grew 5%. Weight per shipment declined 0.7%.

Faghri said preliminary October trends showed continued momentum, with shipments per day expected to rise in the mid-7% range and tonnage per day expected to increase in the mid-6% range year over year. He said the company expects fourth-quarter tonnage growth to accelerate from the third-quarter rate and from October’s growth rate if above-seasonal trends continue.

Pricing also contributed to results. Yield excluding fuel increased 3.6% year over year in the third quarter and improved sequentially, according to XPO. The company said October yield growth excluding fuel was tracking near 5%, while revenue per shipment growth was tracking near 4%.

Harik said third-quarter yield was affected by changes in shipment characteristics, including higher weight per shipment and shorter average length of haul. He said core pricing accelerated after normalizing for those factors. XPO expects yield and revenue per shipment excluding fuel to improve sequentially and accelerate year over year in the fourth quarter.

Service, local accounts and technology initiatives

Management attributed its volume growth and pricing performance to service quality, capacity investment and a shift toward higher-margin freight. Harik said XPO’s damage claims ratio remained below 0.2% during the quarter.

The company opened new locations in Phoenix and Kansas City and said its network has more than 30% excess door capacity to support future growth. Harik also said the company has expanded its trailer fleet by more than 30% and its tractor fleet by more than 20% over the past four years.

XPO continued to target local accounts, premium services and small- to medium-sized customers. The company said it onboarded 30% more new local customers in the third quarter than it did a year earlier. Harik said these smaller accounts generally work directly with a carrier and are particularly dependent on reliable service.

Management also highlighted the growing role of artificial intelligence in operations. AI-based pickup-and-delivery route optimization tools are now used on nearly two-thirds of routes, with full-network deployment expected by early 2027. Harik said the tools have produced low- to mid-single-digit improvements in their current deployment and are expected to improve as the systems gain more data.

In linehaul operations, XPO said an AI planning model reduced freight rehandles by mid-single digits to the lowest level in more than a decade. The company also said AI-assisted loading feedback contributed to a 20% decline in damages year over year.

Cost control, cash flow and capital allocation

Chief Financial Officer Kyle Wismans said salary, wage and benefit costs increased 11%, or $72 million, year over year, driven by volume growth, wage and benefit inflation, and higher incentive compensation. Fuel, operating expense and supplies increased 29%, or $66 million, primarily because of higher fuel prices.

Purchased transportation costs increased by $10 million despite higher freight volume and rising truckload rates. Harik said XPO’s insourcing efforts reduced outsourced miles from roughly 25% when the program began to 5.6% in the third quarter.

“We expect that number now as truckload rates go up, the break-even point effectively keeps on coming down,” Harik said, adding that the company does not expect to increase its outsourced-mile exposure.

XPO generated $291 million of free cash flow in the quarter and ended the period with $260 million in cash and about $860 million in total liquidity, including borrowing capacity. During the quarter, the company completed $123 million in net capital expenditures, repurchased $150 million of common stock and repaid $100 million of debt.

The company’s net leverage ratio improved to 1.9 times trailing-12-month adjusted EBITDA from 2.1 times in the second quarter. In October, XPO repaid an additional $75 million of term-loan debt, bringing year-to-date debt reduction to $275 million.

Wismans said XPO expects to at least double free cash flow in 2026 from 2025 levels, estimating that it could approach $800 million for the year. He said the company expects to use excess cash for share repurchases and debt repayment.

Outlook includes further operating-ratio gains

XPO expects its fourth-quarter LTL operating ratio to be below 82%, compared with normal seasonal expectations closer to 83%, according to Faghri. The company raised its forecast for full-year operating-ratio improvement to 250 basis points or better, from its previous expectation of more than 200 basis points.

Management said it expects another year of earnings growth and margin expansion in 2027, with additional detail to be provided alongside fourth-quarter results. Over the long term, Harik said XPO aims to achieve an annual LTL operating ratio in the low 70s or better.

In Europe, XPO reported 5% revenue growth and 26% adjusted EBITDA growth year over year. The company said it remains committed to eventually becoming a pure-play North American LTL carrier and continues to view a sale of its European business as a strategic priority, although management said it would be patient in seeking an appropriate valuation.

About XPO (NYSE:XPO)

XPO, Inc is a transportation and logistics company that provides freight-moving services to businesses across North America and Europe. Its operations are centered on less-than-truckload (LTL) transportation, which involves consolidating shipments from multiple customers onto a single truck and is commonly used for freight that does not require a full trailer.

In North America, XPO provides regional, interregional and national LTL services, along with related offerings such as freight pickup and delivery, shipment visibility and technology-enabled transportation management.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.