XPO dismisses ‘inaccurate’ and ‘misleading’ report on group’s financial performance

Transportation and logistics group’s share price has been under pressure this week following an earnings warning on Tuesday.

XPO Logistics has dismissed as “inaccurate” and “misleading” a report on the group’s financial performance from New York-based investment manager, Spruce Point Capital.

Shares in the transport and logistics solutions giant have been under growing pressure this week after XPO issued an earnings warning on 12 December to regulatory authorities in the US disclosing that it anticipated achieving 12-15% year-over-year growth in adjusted EBITDA in 2019, lower than it had previously forecast.

This was followed on 13 December by a report by Spruce Point Capital, a New York based investment manager focused on ‘short-selling’ (a practice that involves a trader selling stock or securities and expecting to buy it back later at a lower price) in which the market commentator questioned XPO’s strategy and its accounting practices.

In a brief statement released yesterday, XPO said the report “from a short selling firm is intentionally misleading, with significant inaccuracies, and fails to reflect that XPO has delivered strong performance for its long-term shareholders.

“The facts demonstrate that the short seller’s claims, most of which have been previously floated and refuted, are largely baseless and an attempt to string together unrelated pieces of incorrect information to paint an inaccurate impression of the company. Of particular note, our accounting practices are based on Generally Accepted Accounting Principles (GAAP) and are audited annually and reviewed quarterly by our independent auditors.”

The statement added: “XPO’s long-term financial outlook remains positive. We will communicate directly with our investors and customers regarding this short seller’s report.”

In a statement on its website, Spruce Point noted that it been “following XPO Logistics for years, a transportation and logistics roll-up founded by Bradley Jacobs, co-founder of United Rentals (URI) which collapsed in an accounting scandal during his leadership”.

It continued: “Based on our forensic investigation, we believe XPO is executing an identical playbook to URI − resulting in financial irregularities that conveniently cover its growing financial strain and inability to complete additional acquisitions despite repeated promises.”

Shares in XPO plummeted by more than 26% yesterday on the previous day’s close and show a decline of over 42% when compared with levels at the beginning of the month.

In a statement yesterday, US law practice, Gibbs Law Group, which represents individual and institutional investors, said it is “investigating claims on behalf of investors of XPO Logistics, Inc. involving possible securities law violations. Specifically, our investigation focuses on allegations that XPO may have engaged in unlawful business practices”.

Today, XPO Logistics’ board of directors announced that it had authorized the company to re-purchase up to $1 billion of its common stock in a move reported to be designed to bring some stability to the share price, which was up more than 7% pre-market opening.

Analysis on XPO this week by investment analyst Jefferies following the earnings warning from XPO noted that the group’s full year 2019 estimate for EBITDA growth guidance was lowered from high-teens to low-teens “on the back of increased macro uncertainty in France and the UK”, while full year 2019 FCF (free cash flow) “is expected to remain relatively stable due to tax and capital expenditure headwinds”.

Jefferies added: “Further M&A (on the part of XPO) appears imminent, with a warchest of $8 billion likely focusing on expanding contract logistics to greater than 50% of EBITDA and strengthening positions in European transport. However, competition for assets is heating up, after recent comments from DSV, Kuehne + Nagel and CEVA Logistics, likely leading to increasing valuations, despite a focus on different segments.

“We think share buy backs are becoming an attractive alternative, until a value-accretive acquisition opportunity emerges, with XPO shares trading at an increased 38% discount to logistics peers”.

Source: Lloyd’s