GXO touted what it called its strongest commercial quarter in three years thanks to a 34 percent growth in new business. But despite racking up $410 billion in these new commitments, stock sold off more than 10 percent Wednesday amid margin pressures and a revised guidance that kept earnings midpoints unchanged.
Although the company saw a 4.3 percent revenue increase to $3.4 billion in the second quarter, adjusted EBITDA margins were flat to last year at 6.4 percent of total sales. Operating margins fell to 2.2 percent in the April-to-June quarter, down from 2.7 percent a year ago.
The contract logistics provider expects a “clear line of sight” to margin expansion as its scales its AI operating system, GXO IQ, across its network. But CEO Patrick Kelleher was blunt in his admission that the company currently lags its competitive peers when it comes to pre-tax operating margins.
“We are very focused on closing that gap eclipsing the performance of our peers,” said Kelleher in Wednesday’s earnings call. “We are at a 3.5 percent to 4 percent EBIT margin business right now. We really deserve to be above 6 [percent].”
Kelleher and the GXO management team said more of the margin expansion plan will be touched on at the logistics firm’s investor day on Nov. 16. Chief financial officer Mark Suchinski said he expects “green shoots are going to be coming up in the fourth quarter, and then that will accelerate into 2027.”
The outlook for 2026 has been largely maintained from prior levels, with GXO still forecasting organic revenue growth of 4 percent to 5 percent and keeping free cash flow conversion within a 30 percent-to-40 percent range.
GXO tightened its adjusted EBITDA to a $945 million-to-$965 million range, from a prior gap of $935 million to $975 million. Adjusted diluted earnings per share (EPS) was narrowed to to $2.95 to $3.15, from the previous guide of $2.90 to $3.20.
The updated guidance comes as the company continues to expand its automation capabilities, with plans to deploy 20,000 robots across its logistics network in 2026.
According to Kelleher, GXO has 45 pilots including humanoid robots so far, with an additional test launching in Europe very shortly.
While GXO currently has zero humanoid robots set for production this year, Kelleher said the robotics are “probably two years away” from production. The CEO cited the company has not achieved an ROI on the technology yet.
“I think we are a couple of years away from that, but we are seeing such great progress with our partners around the efficacy of that technology and the application opportunities that it has in the warehouse environment,” said Kelleher. “Humanoids will absolutely feature in our solutions.”
On top of that, the GXO IQ experiment has moved from “platform launch” to “scale deployment” in the quarter. The contract logistics provider is still on track to bring the AI operating system to 50 sites in 2026 and expects to accelerate those deployments throughout 2027.
“We’re packaging our proprietary AI agents into repeatable product waves, starting with forecasting, replenishment and pick optimization that deploy across connected sites rather than being rebuilt one at a time,” said Kelleher. “Our advantage isn’t just having algorithms, it’s deploying them inside live operations and turning that into a repeatable productivity engine.”
He noted later in the call that the productivity gains from GXO IQ will contribute “significantly to operational productivity improvement,” particularly in inbound and outbound picking and labor planning optimization.
As GXO aims to bolster its margins in the long run via the automation and AI deployments, the company continues to build out its customer pipeline.
The Greenwich, Conn.-based firm has secured $1 billion in incremental revenue for 2026, as well as $353 million in revenue for 2027. The company expanded its relationships with Nike and Marks & Spencer, while 40 percent of its new business wins came in strategic growth verticals including aerospace, defense, technology, data centers, industrials and life sciences.
GXO’s largest win in the quarter came via a new partnership with a major “hyperscaler,” a technology company that operates large-scale data center infrastructure.
During the call, the company noted that the Wincanton integration is roughly 90 percent complete. It is still on track for the combined operations to be saving $60 million a year by the time 2026 ends.
