Q2 2026 GXO Logistics Inc Earnings Conference Call

go drive the cost structure in the right direction while continuing to grow the business. So scaling up allows us to leverage the business from a fixed cost standpoint and then driving those productivity across the board. And again, it's just not leveraging the warehouse, but I think we have a lot of opportunity on the procurement side of things when we think about moving from local, regional buying and procurement to leveraging the scale of the organization. And so, you know, we're taking it one step at a time. You know, our COO has been on board here a few months. I'm partnering very close with him to provide him support as we move down the path here. And so I think, you know, that's how I'd phrase it at this point in time. And when we talk with you all in the middle of November, will provide a lot more detail and provide updates on the progress and K and what I call K KPIs that we're measuring and that you should measure as we move forward.

Okay, that's very helpful. I appreciate that. And then maybe a follow-up, just I think in the prepared remarks, you mentioned a new win in Malaysia and you talked about geographic opportunities. We don't typically think about GXO from an Asia perspective in terms of a geography that you've done much in. So can you talk about that and maybe sort of combine that with either the AI sort of data center opportunity for you? Is that going to be another avenue of growth?

Yeah, sure. I can comment on both. 27, we'll be turning our eye to accelerating growth, additional depth, and additional TAM coming into the business for us to drive growth 2027 and beyond. To your question on AI and the deployment there, as we talked about, So GXOIQ is the platform for deployment of AI. We see that in optimization of labor planning. And so we're very excited about sharing a lot more about that on the Investor Day. Appreciate the time. Thanks, Chris.

Our next question is from Scott Schneeberger with Oppenheimer & Company.

Hey, good morning. It's Daniel for Scott. Thank you for taking our question. Could you please discuss what you're seeing if we think about your non-strategic growth verticals, the trends you've been seeing, both from a volume perspective and as well as new business wins, and what you anticipate for the next couple of quarters here?

Yeah, sure, sure. It's hard to call any of them non-strategic. We're putting a lot of emphasis on the B2B strategic verticals, and I know I use that language, but the core of our business, 70% of our business is consumer-facing retail eCommerce, Omnichannel, and CPG. 40% of our wins year-to-date have come from our strategic verticals on the B2B side, but 60% has come to those core verticals. Our second biggest win in the second quarter was a large eCommerce opportunity in Europe. And so we continue to invest in that core business. We want to maintain the leadership position that we have in the execution of those solutions. E-commerce especially represents a great growth opportunity as we look out to 2030. E-commerce projected to grow still at 6% to 8% CAGR, focused on particularly e-commerce and on the channel.

Got it. Thank you. On Wincanton revenue synergies, do you have any incremental insights? It sounds like integration is going well, but any update there, please?

Mark certainly talked about delivering the bottom-line synergies, and we're on track in 26 in terms of revenue synergies, where the Winkley on the defense side, we're already seeing new business wins. We've talked about those in the comments.

Thank you. Our next question is from Ravi Shanker with Morgan Stanley.

Great. Thanks, Morgan, everyone. Patrick and Mark, Mark, I think you mentioned GXOA as a margin driver for 27, and Patrick, I think you mentioned larger and more complex mandates. I'm wondering to what extent this pivot in the makeup of the pipeline will also drive higher margins over time, and if you can help us kind of dimension that a bit.

Yes, absolutely, and I think the question is the answer. We have said that our focus on the B2B verticals especially, these are high-growth markets in and of themselves. They require complex supply chain solutions, specialized executions, certifications that are required, and so they do command structurally higher margins, and that is an important shift to margin improvement is driving more balance in our business across industry verticals. We're going to continue to drive for market leadership in retail e-commerce on the channel and CPG, but we want to see a higher percentage of our business on the B2B verticals. So the B2C verticals today are about 70% of our business. We see the B2B verticals becoming a higher percentage of our business going forward, and that will contribute.

Andres, maybe a quick follow-up here for Patrick and Christine. I think you mentioned 20,000 robots across your network this year. How many of those do you think might be humanoid robots, and what do you think that count will look like by 2030 if you guys have a little more clarity given that you've been running trials or live operations for some time?

Yeah, absolutely. In production, zero will be humanoids this year. We have a number of humanoids deployed in pilot. We've done 45 pilots on humanoids so far. We have an additional pilot launching in Europe very shortly. We have not achieved ROI on humanoids yet. I think we are a couple of years away from that, but we're seeing such great progress with our partners around the efficacy of that technology and the application opportunities that it has in the warehouse environment. Humanoids will absolutely feature. I think in production were probably two years.

Very helpful.

Thank you.

Our next question is from Brandon Oglinson with Barclays.

Hey, good morning. Thanks for taking the question. Patrick, I think you mentioned in your prepared remarks about making investments for the future, and I think you mentioned about your tech team and your ops team working together. Maybe can you elaborate on what you hope to achieve there looking forward?

So in terms of investments in the future, we talked about that in the last couple of calls. Some of our investments have been very focused on sales and marketing. And when you think about the verticals, under a robust marketing agenda, we're already seeing the benefits. Operations perspective, we have been working through development of AI so that we operate within our facilities to ensure we're getting true productivity benefit and return on investment associated with we'll talk more around how that's going to come to life, initiatives that we have to drive ROI on those investments and especially market.

I appreciate that. And actually, that was my follow-up on GXO IQ, but I think you kind of touched on it there. I mean, it sounds like AI is impacting both your operations, your customers, the way you're approaching the market, and even data centers. I don't know. Do you want to expand on that, too?

Yeah, sure. I think we're living in the full life cycle of AI. We absolutely embrace AI as a contributor to efficiency and the quality of execution in our business. We are certainly benefiting from the solutions that we have for our customers in supporting data centers, both the build of data centers, the ongoing maintenance and sustainment of data centers through service parts and return solutions. So we really are living across the whole life cycle of AI, not only embracing the bill out of AI around the world, but actually leveraging AI for our business, both in the operations that we're executing for our customers, but also AI and the management of our own business. We are excited about the potential that AI has for us and certainly for our customers and for the supply chain solutions that we're bringing forward. And that's so important as supply chains are becoming more and more complex to drive for resilience with efficiency.

Thank you. Thanks, Brandon. Our next question is from Ari Rosa with Citigroup.

Hi, good morning. So it sounds like a lot of encouraging developments underway. That's great. I know there have been several questions on kind of the margin profile and the margin uplift. I was hoping you could put some numbers to that. I mean, if we think about GXO traditionally kind of having an adjusted EBITDA margin in the kind of 6% to 7% range, net income margins maybe in kind of the low single-digit range, what is the opportunity there? And I'm sure you'll speak about this at Investor Day, so I apologize if we're kind of preempting that. but just maybe the incremental margins on kind of the new business wins, the new verticals that you're targeting, and then how that translates into the overall margin opportunity for the business if we think kind of two to three years out.

I've said before, and I'll say it again, I think we have a substantial opportunity for margin improvement in our business. We lag our competitive peers in terms of EBITDA and EBIT performance in contract logistics. We're very focused on closing that gap and then eclipsing the performance of our peers. When you talk about the margin levels that you referenced, we're at a 3.5% to 4% EBIT margin business right now. We really deserve to be above six, and we'll share more details on November 16th at the Investor Day in terms of our path to achieve that. But we are absolutely committed to closing the gap to the peer set and ultimately collapsing industry performance on EBIT and EBITDA margins. I think the new business, I know that the new business that we're bringing in is margin accretive performance, so that is our new business agenda, not only achieving the top line growth. We're so excited to share the story on where we see ourselves going in 2027 and beyond to achieve not only sustainable organic growth, but margin enhancement over the 2027 period. And Mark, maybe if you have anything to add.

Patrick, I think you covered it well. You've talked about it at the high level, and now it's for us to execute on that, right? We have lots of opportunities. We're seeing them every single day. And we've got a good plan in place, and we're going to march to that, and we're going to continue to focus on delivering quarter after quarter.

Great. That's helpful. And, you know, one of the features of the GXO story that we've always been drawn to is the free cash flow generation. It looks like you guys are set up to be doing north of $300 million this year based on kind of the conversion rates that you mentioned in the outlook. I'm just curious how you're thinking about priorities for that capital. You mentioned buybacks. Is there a prospect that could accelerate? What are the other uses of capital that you envision? And how should we think about what kind of that sustainable free cash flow looks like?

Thanks, Ari. There's lots of opportunities for us to continue to focus on cash. It's a big priority for me. improving our free cash flow conversion. Obviously, through improving profitability and growing the top line, that helps on the free cash flow side, but I think we've got plenty of opportunities to work on working capital. Collections quicker, billing quicker on the DPO side. Plenty of opportunities to focus there, and we're making some progress there, and I think it's reflective. of small improvements. I think we're taking good steps and we saw some of that come through here in the second quarter. We're going to continue to focus on the cash. But from a capital allocation standpoint, first and foremost, we're going to invest in ourselves. We're going to invest on growing our business. Number one priority, we talked a lot about growth. We need to balance that with continuing to focus on deleveraging, reducing our interest expense that helps bring more cash to the bottom line. But as you indicated, you know, we went started to buy shares again here recently. We have $280 million left under our current plan and I would say that, you know, with where the stock price is at this point in time, we think it's a great investment and so therefore, you know, we will continue to buy back shares here in the back half of the year. And then I think when we get to Investor Day, I think we'll go much deeper into our plan around capital allocation. But, you know, that's the priorities. And as I said, you know, with where the stock price is, we're going to continue to buy shares because we think that our stock is undervalued.

Appreciate the time. Thanks, Ari.

Our next question is from Tom Wadowitz with UBS.

Yeah, good morning. Let's see. I wanted to start with just some thoughts on competitive environment. It's great that you're seeing these wins in data center and aero defense. How do you think about who else can do that business well? I'm sure it's a broad group that wants to do that, but is data center? Do you compete a lot with those that have strong forwarding? Is it really, you know, kind of those that have already done data center for a long time and it's kind of the big global players like DHL supply chain? Or just how do you think about that competitive environment? And also, I think the just, I guess, how you differentiate in those markets as well.

I would just say I'm really pleased with the competitive in those areas, both on data center and on aerospace and defense, and I think our success there is great evidence. Top of the list for owners in those industries to pick GXO to work with, and that's flowing through in the sales number. I think we have very differentiated capabilities on the data center side in terms of being an end-end provider around the data center, supporting not only the forward build, but also parts replenishment, sustainment, long-term.

You're commenting on both AeroDefense and then saying you want to be market leader in data center too, or was that more an AeroDefense comment?

I think we are a market leader, certainly given the volume of new...

And then I guess a quick follow-up would be on attrition. you know, I think we normally think about your, you know, obviously the contract wins with the big driver, but then you have something like 5% attrition is kind of normal. As you work on this mix and have traction in the strategic customers, does that imply that your attrition rate would tend to go down? And I guess that would also maybe just be a question, well, are these also kind of stickier, longer-term contracts that you're signing in these strategic areas? Thanks for the time?

Sure. Yes. It does imply that our attrition rate would go down. Our focus on our customer success model is going to be a contributor to that. We want to create stickier relationships, longer-term relationships, and we want to continue to reduce churn in the business as a lever to drive more accelerated organic growth. So that is very clearly. We'll share on November 16th, Investor Day, the trajectory that we see ourselves achieving at the end of the year.

Great. Thank you.

Our next question is from Jason Seidel with TD Cowan.

Thank you, Patrick, Christine, team. Good to talk to you guys this morning. I wanted to look at GXO IQ a little bit closer. I mean, obviously, you guys are going to have 50 sites by the end of this year. Maybe you can sort of give us an update for some of what you're seeing in terms of the early gains and then maybe go into what do you think 27 is going to bring in terms of number of sites.

Yes. As I said, we're going to be deployed to more than 50 sites by the end of the year. I am going to defer the answer to the question to November 16th. We have lots of details that we're pulling together on that, and it will best be shared in the context of the overall story that we're going to share on that.

Okay, if we can switch gears a little bit then towards your strategic growth verticals, and it's good that you guys are showing some gains there. How should we think about, in general, sort of that business from a margin profile versus some of your legacy businesses?

Hi, Jason. It's Christine. I think, you know, in my prepared comments we talked about, and Patrick has talked about in several answers here, about attractive economics in these verticals. And the more complex the operations, the more value-added services that we're providing for our customers, the more differentiated outcomes, these mean better economics for us, and then certainly, as we talked about, stickier, longer-lasting relationships with those customers. So I think overall, as the mix continues to evolve for us, this is one of the levers as we look forward to margin improvement that will be a long-term driver to that as we look out over the next several years.

But if I can push on that a little bit, is there any way you guys can sort of push us in the right direction on just how much more it can add to the margins in terms of your existing business? What are we looking at? Is it 100 basis points? Is it more than that?

Yeah, I think for obvious reasons, we wouldn't comment on sort of specific margin differentials between it. We can share on November 16th sort of an overall context of how the blend of the business will generate higher margins. So we'll make sure to contextualize that in a helpful way.

Fair enough. I look forward to November then.

Our next question is from Basco Majors with Stephen.

Thanks for taking my questions. Patrick, as you approach the year mark here and look at the results of the GXO business versus the results of your former competitor's supply chain business, Can you help us understand, as analysts mostly focus on U.S.-listed companies, are there some mixed differences that help explain their higher recent organic growth? I don't know if it's the overweight U.S. versus you today or a little bit of Asia in there, but just big picture, where is the mix driving a faster growth rate there? and, you know, where is that an opportunity in your long-term strategy as we look forward?

Yeah, sure. I think that I have spoken to this on previous calls. As GXO, we're underweighted in North America. That is a high-growth market, and we have put a lot more emphasis on growing in North America since I joined a year ago, and we're seeing the benefits of that focus come through in the new business wins. With the new business wins being signed, we should see accelerated organic growth of that focus. I do think that Asia represents a phenomenal opportunity, that mix in the future, and we're going to share lots more details on that on November 16th.

To clarify that point, are these just markets with higher growth rates? Asia and the Americas right now than Europe. And that's part of it. And, you know, if you could add a little more intra-Europe, you know, the GXO business is overweight, the UK, DHL is overweight, Germany. There's some intra-Europe differentials that are just, you know, market growth rates not necessarily working in your direction today. Thank you.

Yeah, sure. So we have enjoyed great growth in Europe and the UK. We're going to continue to enjoy that great growth as we compete in those markets. North America is a market that is growing at a higher rate in contract logistics, and we want to leverage our scale and position in this market for accelerated growth. Asia, we're a very small business in Asia today, so a focus on growing our business in Asia will be important to contributing to that organic growth. When we look at inter-Europe, maybe in expansion in Asia, gives us accelerated growth, but also resilient growth.

Thank you. Our next question is from Brian Ostenbeck with J.P. Morgan.

Hey, good morning. Thanks for taking the question. Maybe first just a quick follow-up on the short term here. Can you give a little bit more perspective or, I guess, confidence in the visibility for accelerating both kind of organic growth, organic revenue growth, and then the wins to support, you know, what I would think is accelerating organic growth in 27? How much of that is just stuff you have in the pipeline already that's coming online, or maybe it's a mix of the new strategic stuff that's starting to ramp up as well?

Yeah. Hi, Brian. I think it's – this is Christine here. I think, you know, we've hit a bit on all the commercial activity that has really just really gone up in a big way over the last six months, and we're really seeing that sustained momentum as we move into the back half. So our incremental revenues for this year, obviously, at this point, are a record, so a $1 billion. So we feel very good about as we're moving into the back half, delivering on the organic growth guidance that we've reiterated here today. And then as we look out into 2027, as we're converting the new wins for the third quarter and the fourth quarter, those will largely fall into next year. And, of course, we'll be building on that, layering on that, those opportunities as we move into the first half of next year. So I think we have every bit of confidence, as I previously mentioned, that we'll exceed the wins from last year substantially, and we look for accelerating organic growth as we move into 2027.

Thanks, Christine. Maybe for Patrick, just stepping back in over here a lot more in a few months at the investor day, but what are sort of the constraints you see here for profitable growth? I know time is always one, getting new companies to outsource and take over in place. How about locations, real estate, labor availability, and also just kind of curious to hear what you think you need to do to establish a bigger foothold in Asia Pacific region?

Thank you. Yeah, sure. In terms of any sort of headwinds to organic growth for us, it really is going to be about managing the things that we control. And the biggest will be to make sure that our operational staff capabilities and sort of people capacity that we have in place is matching from a new business signings perspective so that we can be managing successfully implementations and bringing new customers on, new operations on, this is organic growth aspiration. So we work really hard in planning, make sure that we have a responsibility for an operation for example, making sure that we've got the talent to step up a significant amount of my time in positioning us for organic growth.

Just on anything you can preview for AsiaPAC, what you might need to get a bigger foothold there.

All right. Thanks very much, Patrick.

Thank you. We have reached the end of our question and answer session. I would like to hand the floor back over to Patrick Kelleher for any closing remarks.

Thank you. And as we conclude the call, I want to note that this quarter marked five years since GXO became an independent public company. And in two weeks, I'll mark my first anniversary as CEO. I am so proud of the progress that we've made evolving what I truly believe is a category-defining company. Over the past year, we've strengthened our leadership team, implemented a more customer-centric commercial model, and we are strengthening operational execution through the GXO way. We're winning more business, deepening the relationship with customers, and diversifying into higher margin strategic verticals. Our strongest commercial performance in three years, particularly in North America, reflects the progress that we're making and reinforces our conviction that we're building the right foundation for long-term growth. At the same time, we're investing in capabilities that will define our future success. We're advancing GXO IQ, scaling automation, strengthening our talent pipeline, and building an organization designed to perform consistently and grow sustainably over the long term. We are not focused on short-term gains. We are building a stronger GXO with capabilities, talent, and operating model to create value for customers and shareholders for years to come. We're still early in the journey, yet the momentum we're seeing gives me such tremendous confidence in our future. We're executing our financial plan, investing strategically for the future, and allocating capital effectively, including the deployment of our $280 million open share buyback authorization, and new business wins positions us for accelerating growth into 2027. To end, I want to thank our team members around the world for their commitment and thank our customers and shareholders for their trust and support. We look forward to updating you on our progress next quarter and sharing more about our long-term strategy at Investor Day in November. Thank you for joining.

This concludes today's conference. You may disconnect your lines at this time. Thank you again for your participation.