GXO Logistics Update

GXO reported another standout quarter last week, hitting its stride in the early innings of the logistics upcycle.

Revenues of $3.4 billion jumped 8% YoY, marking an all-time record for Q3. Organic growth of 4% marks the continued recovery from the destock trough reached in Q4 2023 and has remained in a clear uptrend ever since. New business wins of $280 million (+24% YoY) brought year-to-date wins above $800 million, putting GXO on pace for its third straight year topping $1 billion in new contracts.

Even more encouraging, the top-line recovery still looks to be in the early innings. 2026 is already shaping up as another strong year, with $690 million of incremental revenue booked through Q3 (up nearly 50% from the same point last year), effectively locking in 5%+ gross organic growth before factoring in any additional wins, renewals, or volume acceleration.

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Margins are the next piece of the puzzle. They’ve lagged the top-line recovery and remain below both historical averages and the long-term 9%+ target, with year-to-date adjusted EBITDA margins at 6.5%. Much of that drag came from the Wincanton integration delays caused by the CMA review, which is now firmly behind GXO, with the full $60 million run rate of cost synergies on track by year-end 2026. Beyond that, rising automation (now over 40% of revenues and contributing ~200 bps of margin lift) and expanding higher-value services like reverse logistics (adding ~300 bps uplift) position GXO for what CEO Patrick Kelleher calls a “structurally higher margin base.”

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Speaking of CEO Patrick Kelleher, we continue to view him as a major catalyst in GXO’s next era of growth. With over 33 years of global supply-chain experience, he’s a proven operator whose track record speaks for itself — logistics are in his blood.

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Kelleher set a clear mandate in his inaugural call: re-accelerating organic growth is the top priority, and North America will be the engine to get it done – stomping grounds he knows better than anyone as the former CEO of DHL Supply Chain North America.

With the U.S. accounting for just $3.1 billion (~26%) of revenues in 2024 and a total addressable market north of $250 billion, the runway for expansion is wide open, especially in higher-margin verticals like Industrial, Life Sciences, Aerospace & Defense, and Technology. In fact, the sales pipeline in those segments climbed 30% sequentially, with Technology tripling. Even before finding the coffee machine, Kelleher is positioning GXO to tap into that growth, bringing in Michael Jacobs, his hand-picked Americas leader, and reallocating resources to North America.

The mega-trends across these verticals, combined with the added complexity of tariffs and reshoring, put GXO at the center of a massive, needle-moving opportunity. Early traction in foreign trade-zone demand is already evidence of that shift — tailwinds that should be a shot in the arm for outsourcing and music to GXO’s ears.

So while the stock may take a breather on noise around the consumer or a “slow” holiday peak season, we think that misses the forest for the trees. With more than $800 million of incremental wins already signed for 2025 and a 95% retention rate, GXO remains well on track to reach its full-year organic-growth range of 3.5% to 6.5%. Where results land within that range will depend on volumes, with the midpoint of 5% implying Q4 organic growth of 7.8% — the strongest in over three years.

If recent history is any guide, betting against the consumer has rarely been a profitable trade.

United States Holiday Sales Forecast (+3.7%–4.2% | ~26% of 2024 Revenues)

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United Kingdom Holiday Sales Forecast (+4.2% | ~45% of 2024 Revenues)

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With multiple catalysts in place for a return to the holy grail of high single-digit organic growth and a structurally higher margin base, all signs point to GXO getting its swagger back. Together, those drivers lay the foundation for a strong recovery back to normalized earnings power and a re-rating toward the multiple a high-quality, double-digit-growing cash machine deserves.

Q3 Earnings Breakdown

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10 Key Points

1) GXO posted record quarterly revenues of $3.4 billion, up 8% YoY. Most importantly, 4% of that growth was organic, with every region contributing and bringing full-year organic growth to 4.1%. The remaining 4% came from an FX tailwind, a key piece of our bull thesis on multinationals benefiting from a weaker dollar.

2) New business wins during the quarter totaled $280 million, up 24% YoY. This brings total incremental revenue secured for 2025 to ~$800 million, with management having a clear line of sight to exceed $1 billion for the year — which would mark the third straight year of new business wins above $1 billion. Looking ahead to 2026, GXO has already signed $690 million of incremental revenue, up nearly 50% from the same point last year.

3) GXO’s total sales pipeline now stands at $2.3 billion, with opportunities in life sciences and aerospace and defense each increasing by ~30% sequentially, while technology tripled. The technology vertical, with a $28 billion TAM, is a high-margin segment where GXO is making a major push, having secured three new contracts with a leading hyperscaler during the quarter.

4) One of new CEO Patrick Kelleher’s top priorities is accelerating organic growth, particularly in the U.S., which represented just 26% of revenues in 2024. North America remains one of the largest and fastest growing logistics markets globally, with a total addressable market exceeding $250 billion. GXO has appointed Michael Jacobs as president of the Americas and Asia Pacific region and is strategically reallocating resources toward sales, solutioning, and digital marketing to drive stronger organic growth. Management views this as a major catalyst, positioning GXO to benefit from rising industrial, aerospace and defense, and data center activity, as well as the ongoing reshoring of manufacturing to the U.S. and tariff driven supply chain localization, both meaningful tailwinds for the business.

5) GXO’s landmark $2.5 billion, 10-year deal with the UK’s NHS Supply Chain went live flawlessly in October and is expected to ramp up and make a material contribution to Q4 results. Management is already in discussions to expand that partnership and capitalize on broader growth within the $34 billion life sciences segment. Another notable win in the space is expected to close during Q4, as well as a strong pipeline of strategic opportunities expected to close before year end.

6) The Wincanton integration is officially underway, having kicked off in October, with the combined teams already securing their first win together. The $60 million of run-rate cost synergies remain on track to be fully realized by the end of 2026, which is expected to be a meaningful margin tailwind for the year. Management also expects to unlock significant revenue synergies over the coming years, similar to those achieved through the Clipper acquisition, which was the key driver behind the landmark $2.5 billion NHS contract and GXO’s expansion into the healthcare segment.

7) Adjusted EBITDA came in at $251 million during Q3, up 13% from $223 million in the prior-year period. Margins expanded by 100 basis points sequentially and 30 basis points year over year, driven by improved site-level productivity and successful automated start-ups. Management continues to see an opportunity for a structurally higher margin base, with YTD margins of 6.5% compared to the long-term financial target of 9%+, supported by growth in automation-related revenues and value-added, high-margin services such as reverse logistics.

8) Management reaffirmed full-year guidance, calling for organic revenue growth of 3.5% to 6.5% and adjusted EBITDA between $865 million and $885 million. So far, management is seeing a normal peak season, consistent with full-year expectations for flat customer volumes. Management remains confident in delivering both growth and margin expansion in 2026, with an Investor Day planned for early next year to update the market on long-term guidance.

9) Free cash flow for the quarter came in at $187 million, up from $110 million in the prior-year period. This brings year-to-date free cash flow to $96 million, compared to $124 million last year. Operating return on invested capital came in well above expectations at 48.6%, versus the long-term target of >30%.

10) GXO’s net leverage ratio improved sequentially to 2.7x from 3.0x, even after executing $200 million in share buybacks during the first half. Cash and cash equivalents now stand at $339 million, with total liquidity of $1.3 billion against total debt of $2.7 billion. Management plans to further de-lever the balance sheet in 2026, with M&A not on the near-term agenda.

Earnings Call Highlights

QXO Update

QXO earnings came with no surprises last week, coming in line with the pre-announced results from late October. Q3 sales of $2.73 billion were down 1% YoY versus legacy Beacon’s $2.77 billion. Adjusted EBITDA margins of 11.1% improved by 40 bps sequentially but were still down year over year from legacy Beacon’s 11.7%. The stock had been under pressure lately, selling off in concert with the weakness across the broader residential roofing market — something QXO isn’t completely immune to.

For those worried about quarter-to-quarter volatility or cyclical softness, this story isn’t for you. In fact, we’ll be sending Christmas cards to all the generous former shareholders who puked in the hole on a “soft” quarter.

For the rest of us, this line from Brad Jacobs is all we need to hear:

“We’re making excellent progress optimizing Beacon and continue to find new avenues for growth. We outperformed the market this quarter and are firmly on track to organically grow legacy Beacon’s EBITDA to more than $2 billion. This momentum, combined with a very robust acquisition pipeline, primes us to reach $50 billion in annual revenue within a decade.”

Outperformed the market. New avenues for growth. Firmly on track to double EBITDA to >$2 billion. Robust M&A pipeline. On track for $50 billion in annual revenue within a decade (~5x the current ~$10 billion).

In plain English, that leaves ~$40 billion of top-line expansion still to come — the vast majority through M&A. With the entire industry stuck in the cyclical “pain zone,” the longer the weakness lasts, the more attractively priced acquisition targets become.

You have to ask yourself: if you’re QXO, with only one deal under your belt and still in the early innings of an aggressive M&A journey, would you rather have an industry firing on all cylinders and pay peak multiples, or take advantage of temporary macro noise and shop from the clearance rack?

When you zoom out, the answer becomes abundantly clear. The longer this dislocation persists, the more of the 7,000+ distributors across North America will find themselves in QXO’s sights — a manna from heaven opportunity for a serial acquirer like Brad Jacobs. Frankly, we wouldn’t draw it up any other way.

In the meantime, while we wait for the next big acquisition, the focus remains on improving efficiency and driving organic growth at legacy Beacon, where progress is already visible. Management has identified ~$200 million of pricing leakage caused by undisciplined discounting and operational inefficiencies, cleaned up the organizational structure, and improved inventory availability. On top of that, Jacobs is running the same playbook he always does, leveraging technology and automation to whip this outdated industry into QXO shape.

These are just the early steps toward the long-term goal of doubling EBITDA to over $2 billion and achieving 500+ bps of margin expansion over the next five years.

The way we see it, this is a textbook opportunity for Brad Jacobs to roll up his sleeves and do what he does best: transform fragmented industries and create massive shareholder value in the process. Have some patience and park this one in the filing cabinet, because at the end of the day, temporary macro noise doesn’t change a single one of the major structural tailwinds working in QXO’s favor.

Shortage of nearly 4 million homes in the U.S.

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Significantly aged U.S. housing stock, with a median home age over 40 years

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Weak infrastructure spending driving more than $2 trillion in needed investment across North America over the next two decades

70+ million millennials entering peak family formation years

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Wolfe came out shortly after earnings, taking the long view and maintaining a $43 price target. We agree.

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Q3 Earnings Breakdown

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General Market

The CNN “Fear and Greed Index” ticked up to 28 this week from 27 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked down to 90.06% this week from 100.83% equity exposure last week.

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