GXO Logistics (GXO 0.86%) was spun off from XPO over two years ago with a simple pitch for investors.
The new company would be the largest pure-play contract logistics company in the world, positioning itself to make acquisitions in line with its interests, allocate capital according to its needs, and reward employees based on the company’s performance.
Thus far, the company has largely succeeded in that mission, acquiring Clipper Logistics and PFSWeb, continuing to expand its geographical footprint, and making progress toward its 2027 profit goals.
GXO’s technology is a big part of its investor value proposition as well. Dating back to its XPO days, the company has invested in technology and automation such as collaborative robots, goods-to-person solutions — meaning mobile robots bring products to warehouse workers — and vision technology that can act as code scanners and provide augmented reality-based insights. Over the past year, the company has increased its total technology and automated units by 67%, deploying more than 4,000 adaptive technology units over the last year.
Currently, about 30% of the company’s revenue comes from automated operations, compared with the industry average of less than 10%.
GXO recently stepped up its commitment to automation and technology by promoting Adrian Stoch to chief automation officer in July. On the third-quarter earnings call, CEO Malcolm Wilson explained the position, saying, “His role is absolutely a reinforcement of our strategy about accelerating the tech deployment across our business: Good for margins, good for customer retention, it continues to allow us to be a leader of the environment when it comes to automating the warehousing space.”
Image source: GXO Logistics.
GXO’s differentiation factor
Stoch had served as consumer division president in the company’s Americas & Asia-Pacific region, leading automation efforts, and has spent three decades in supply chain and operations in a range of industries.
He said the company’s technology deployments allow it to earn margins that are 200 basis points higher than the industry average, and there’s potential for it to go higher. He’s also taking a data-first approach to the company’s automation expansion and determining the best way to drive return on investment.
In an interview I did with him, Stoch also said he takes a holistic approach to deployments rather than favoring a specific technology, and that it’s vital to deploy the right technology and design the automated warehouse because these are expensive, long-term deployments. As a bit of a cautionary tale, Stoch explained: “I’ve seen customers who’ve insourced, make some dramatic errors, because they just don’t have the experience we go through. We go through these multiple times a month in terms of assessing best solution options, and how best to solve these complex problems for our customers.”
In other words, GXO’s expertise in automation can’t easily be duplicated, and its decision to appoint a chief automation officer shows how much of a priority it is for the company and how it sees it as a competitive advantage. It’s a key differentiator in attracting customers and driving margins.
What’s next for GXO
GXO shares gained on the earnings report even as the company trimmed its organic revenue growth guidance for the year from 6%-8% to 2%-4%, citing macro headwinds. It sees lower customer volume growth than expected, especially in consumer-facing sectors.
Despite that, the company still raised its bottom-line guidance for the year, a credit to the way it designs its contracts with minimum volume requirements and cost-plus pricing, helping to protect its margins.
That the stock still rose even as it cut its revenue guidance shows investors are willing to look past the near-term headwinds here and focus on the long-term growth opportunity, and its automation advantage is a big piece of that. As Stoch said on the call, “GXO is already the market leader in supply chain automation,” and it looks set to push that edge with his promotion to chief automation officer and adaptive tech units growing by nearly 70% a year.
The macroeconomic environment will eventually turn, and when it does, GXO will be well-positioned to win new customers and expand existing relationships. That should make it a winner for investors over the long term.