Is RXO Perfectly Positioned for a Breakout?

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Written By Joel Gbolade

RXO, Inc. (NYSE: RXO) is a company operating within the trucking and logistics industry. As of its 1Q24 earnings report on May 2, 2024, RXO demonstrated significant improvements in several key financial metrics, providing a positive outlook for the company’s future performance.

Financial Performance

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In 1Q24, RXO reported consolidated gross revenue of $913 million, a decrease of 9.6% year-over-year. Gross profits were $159 million, with a total gross margin of 17.4%. Notably, the truck brokerage margin was a highlight, coming in 20 basis points above the guided range of 12% to 14%.

Adjusted EBITDA for the quarter was $15 million, aligning with the consensus estimate and falling at the midpoint of the company’s guidance.

Key Highlights and Improvements

RXO showed strong sequential improvements compared to 4Q23 across multiple fronts:

  • Truck Brokerage: Annual revenue per load improved by 500 basis points (down 15% in 1Q24 versus down 20% in 4Q23). Gross profit per load and gross margin improved each month, exiting the quarter at 15% compared to 13% in January, indicating significant pricing improvements.
  • Last-Mile Revenue: Improved by approximately 390 basis points (down 3.3% in 1Q24 versus down 7.2% in 4Q23).
  • Managed Transportation: Showed strong sequential improvement (down 22.8% in 1Q24 versus down 27% in 4Q23).

Despite macroeconomic conditions not yet recovering to normalized levels and the market experiencing excess capacity, RXO’s management executed effectively, achieving 11% volume growth in the quarter, driven by 8% growth in full truckload and 18% growth in contract volume compared to the previous year.

Contract volume has improved to 79% of RXO’s business, indicating increased customer confidence in locking in future capacity.

Market Trends and Future Outlook

Based on BTS statistics, spot rates have returned to pre-COVID levels of $1.5 to $2 per mile. The combination of an improving economy, potential rate cuts, and visible signs of volume growth suggests that pricing may stabilize soon.

RXO’s April revenue per load showed a mid-single-digit percentage decline year-over-year, with improvement versus March, indicating a sharp pricing improvement since the beginning of the year.

The 2Q24 outlook for revenue per load in the truckload business projects flattish year-over-year growth, a significant improvement from the -15% seen in 1Q24.

Margin Improvements and EBITDA

The incremental margins on pricing are high due to the business’s fixed cost nature. Adjusted EBITDA margin has varied significantly, reaching over 7% when gross revenue growth was above 20% and falling to 1.6% when revenue growth was negative.

As pricing improvements translate to the EBITDA level, RXO should see sharp margin acceleration in the coming quarters.


The base-case target price for RXO is $33, based on the following growth assumptions:

  • Flattish growth in FY24, with continuous volume recovery and pricing stabilization.
  • 10% growth in FY25, using a similar pace of improvement seen in 1Q24.
  • 20% growth in FY26, with continued growth momentum.

As growth reaccelerates, adjusted EBITDA margin is expected to recover to the previous cycle’s peak of 6%. In an upside scenario, RXO could continue trading at the current elevated adjusted EBITDA multiple of 19x, leading to a potential price target of $117.

However, a more conservative assumption places RXO at a historical average multiple of 14x forward EBITDA.

Risk Factors

The primary risk is the macroeconomic environment. If the recovery does not continue as expected, it could heavily impact RXO’s earnings estimates and overall financial performance.

Is RXO Perfectly Positioned

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RXO, Inc. has shown strong sequential improvements in volume and pricing across all segments, suggesting a positive outlook for the company.

Despite macroeconomic uncertainties, RXO’s effective management and the combination of volume growth, pricing stabilization, and margin improvement position the company well for strong earnings growth in the coming years.


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