XPO August tonnage up 3.7%, on track for Q3

Less-than-truckload carrier XPO Inc. Remains on track to achieve its third-quarter guidance after reporting a 3.7% year-over-year increase in tonnage for August. The result, detailed in a Thursday news release, was driven by a 5.7% jump in daily shipments, partially offset by a 1.8% decline in weight per shipment.

While the headline tonnage growth decelerated from July's 5.8% year-over-year increase, the company noted the prior-year comparison was more challenging in August. On a two-year-stacked comparison, which smooths out year-ago fluctuations, all volume metrics improved in August compared to July. Two-year-stacked tonnage was down just 1% in August, following a 2.9% decline in July.

Performance and Guidance Alignment

The August update implies a continuation of seasonal outperformance, following a second-quarter call where XPO said July tonnage was essentially flat with June. That July performance was 400 basis points better than normal seasonal trends. The company's third-quarter guidance calls for a mid-single-digit percentage year-over-year tonnage increase.

XPO does not provide revenue-based metrics in its intraquarter updates. However, the company previously stated that contractual rate renewals were up by a mid-single- to high-single-digit percentage in the second quarter. It also said on its earnings call that yield and revenue per shipment, excluding fuel, will continue to improve sequentially in the third and fourth quarters.

Freight Mix and Economic Context

Weight per shipment improved on a two-year comparison, which the release suggested indicates more industrial-related freight is returning to the network. This occurs against a backdrop of a manufacturing sector that, while cooling slightly, remains in expansion. The Institute for Supply Management's Manufacturing PMI registered 54.6 in August, 100 basis points below July's four-year high but still above the 50-point threshold that separates expansion from contraction.

The new orders subindex, an indicator of future activity, fell 3 points to 53.7 but stayed in growth mode. Carrier tonnage typically lags this index by approximately three months. XPO's changing freight mix presents a continued headwind to the average weight per shipment, as the company is handling more shipments from local small and medium-sized business accounts. These shipments are typically lighter but produce better margins for the carrier.

Operating Ratio Outlook

XPO's adjusted operating ratio outlook for the third quarter also appears intact. The company normally experiences 200 to 250 basis points of OR degradation from the second to the third quarter, which would imply a ratio above 82%. However, XPO expects to generate an OR below 81% for the quarter, suggesting at least 180 basis points of year-over-year improvement.

As one of the few publicly traded LTL companies, XPO's midquarter metrics provide rare insight into a trucking subsegment with few public datasets. The company's next comprehensive update will come with its third-quarter earnings report.