XPO surges on margin strength despite Q4 earnings miss
Less-than-truckload carrier posts 12th straight quarter of revenue-per-shipment growth as operating efficiency drives investor confidence
XPO Logistics shares climbed in pre-market trading Thursday after the less-than-truckload carrier reported fourth-quarter results that missed earnings expectations but revealed substantial operational improvements driving investor confidence.
The Greenwich, Connecticut-based logistics company reported adjusted earnings per share of $0.88, falling short of analyst estimates of $1.02, while revenue of $2.01 billion missed the $2.07 billion target. Despite the headline misses, XPO's stock advanced 1.6% to $182.13 as investors focused on the company's expanding margins and steady operational execution.
The North American LTL segment—XPO's core business—delivered adjusted operating income growth of 13.8% year-over-year, with the adjusted operating ratio improving 180 basis points to 84.4%. An operating ratio measures operating expenses as a percentage of revenue; lower figures indicate greater efficiency. The improvement marks the company's 12th consecutive quarter of sequential revenue per shipment growth excluding fuel, a streak that demonstrates sustained pricing power and network optimization.
"We delivered a year of strong execution with profitable growth, driven by service excellence and continuous business improvement across our network," said Mario Harik, XPO's chairman and chief executive officer. "AI developments are lowering our cost to serve by improving network efficiency and labor productivity. We remain focused on building durable earnings power and positioning for outsized share and margin gains in a recovery."
Harik's comments underscore how XPO is leveraging artificial intelligence and technology to improve operational efficiency amid a challenging freight environment. The LTL sector has faced soft demand from manufacturing, yet carriers have maintained pricing discipline—expectations for 2026 rate increases range from 2% to 5%, according to industry analysts.
XPO generated $226 million in cash flow from operating activities during the quarter and repurchased $65 million of common stock, demonstrating confidence in its business model and commitment to returning capital to shareholders. The company's adjusted EBITDA increased to $312 million from $303 million in the year-earlier period.
The less-than-truckload carrier's yield, excluding fuel, increased 5.2% year-over-year, while shipments per day declined 1.6% and tonnage per day decreased 4.5%. The divergence between yield growth and volume declines reflects XPO's strategy of prioritizing profitable freight over market share expansion, a discipline that has become increasingly common across the LTL sector.
Analysts have responded positively to XPO's operational momentum. TD Cowen maintained a "strong buy" rating with a $158 price target, while Stephens raised its target to $170, anticipating positive margins driven by expected industrial demand recovery. Deutsche Bank suggested a $163 target for short-term investors, and Bank of America set a $160 target, citing XPO's AI advancements and broader transport sector optimism. The consensus rating among 17 analysts is "buy" with an average price target of $150.06.
The broader LTL market is projected to grow from $231.14 billion in 2026 to $333.89 billion by 2034, representing a compound annual growth rate of 4.7%. The U.S. LTL market specifically is estimated at $118.68 billion in 2026, expected to reach $144.97 billion by 2031. Key drivers include e-commerce expansion, global trade growth, and ongoing supply chain optimization efforts.
XPO's performance reflects trends across the LTL sector, where carriers like Old Dominion Freight Line have reported revenue declines but maintained strong yield growth. Old Dominion's LTL revenue per hundredweight, excluding fuel surcharges, increased 4.9% year-over-year in the fourth quarter despite a 5.7% revenue decline.
The company's focus on margin expansion and operational efficiency comes as the logistics industry navigates higher operational costs and more complex freight profiles. LTL carriers are increasingly relying on rules, accessorials, and service modifiers to drive revenue rather than base rates alone, according to industry analysts.
XPO's shares have gained momentum in recent sessions, closing up 9.23% on February 2 to $163.06. The stock's 52-week range spans $85.06 to $171.74, with the current market capitalization at approximately $19.2 billion. The company trades at a trailing price-to-earnings ratio of 58.87 and a forward P/E of 38.17, reflecting investor expectations for continued growth.
Looking ahead, management indicated expectations for significant acceleration in free cash flow in coming years, with continued focus on market-leading margin expansion. The company's ability to maintain yield growth while implementing cost controls through AI and network optimization will be critical factors in sustaining investor confidence as the freight market potentially recovers in late 2026.