Contract logistics company GXO (NYSE: GXO) announced better-than-expected revenue in Q1 CY2025, with sales up 21.2% year on year to $2.98 billion. On the other hand, next quarter’s revenue guidance of $2.97 billion was less impressive, coming in 2.6% below analysts’ estimates. Its non-GAAP profit of $0.29 per share was 14.5% above analysts’ consensus estimates.
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GXO Logistics (GXO) Q1 CY2025 Highlights:
- Revenue: $2.98 billion vs analyst estimates of $2.94 billion (21.2% year-on-year growth, 1.4% beat)
- Adjusted EPS: $0.29 vs analyst estimates of $0.25 (14.5% beat)
- Adjusted EBITDA: $163 million vs analyst estimates of $154.8 million (5.5% margin, 5.3% beat)
- Revenue Guidance for Q2 CY2025 is $2.97 billion at the midpoint, below analyst estimates of $3.05 billion
- Management reiterated its full-year Adjusted EPS guidance of $2.50 at the midpoint
- EBITDA guidance for the full year is $850 million at the midpoint, above analyst estimates of $843.1 million
- Operating Margin: -1.9%, in line with the same quarter last year
- Free Cash Flow was -$49 million compared to -$17 million in the same quarter last year
- Organic Revenue rose 2.7% year on year (1% in the same quarter last year)
- Market Capitalization: $4.42 billion
Company Overview
With notable customers such as Nike and Apple, GXO (NYSE: GXO) manages outsourced supply chains and warehousing for various companies.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, GXO Logistics’s 15.2% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. GXO Logistics’s annualized revenue growth of 15.1% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong. GXO Logistics recent performance stands out, especially when considering many similar Air Freight and Logistics businesses faced declining sales because of cyclical headwinds. 
We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, GXO Logistics’s organic revenue averaged 2% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results. 
This quarter, GXO Logistics reported robust year-on-year revenue growth of 21.2%, and its $2.98 billion of revenue topped Wall Street estimates by 1.4%. Company management is currently guiding for a 4.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 4.1% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
GXO Logistics was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.9% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
Analyzing the trend in its profitability, GXO Logistics’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
This quarter, GXO Logistics generated an operating profit margin of negative 1.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
GXO Logistics’s EPS grew at a decent 8.2% compounded annual growth rate over the last five years. However, this performance was lower than its 15.2% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.
Diving into GXO Logistics’s quality of earnings can give us a better understanding of its performance. GXO Logistics recently raised equity capital, and in the process, grew its share count by 37.4% over the last five years. This has resulted in muted earnings per share growth but doesn’t tell us as much about its future. We prefer to look at operating and free cash flow margins in these situations. 
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For GXO Logistics, its two-year annual EPS declines of 2.1% mark a reversal from its five-year trend. We hope GXO Logistics can return to earnings growth in the future.
In Q1, GXO Logistics reported EPS at $0.29, down from $0.45 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects GXO Logistics’s full-year EPS of $2.63 to stay about the same.
Key Takeaways from GXO Logistics’s Q1 Results
We enjoyed seeing GXO Logistics beat analysts’ EBITDA expectations this quarter. We were also glad its organic revenue outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 2.3% to $39 immediately after reporting.
Sure, GXO Logistics had a solid quarter, but if we look at the bigger picture, is this stock a buy? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
