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XPO faces growing scrutiny from Congress, investors

December 20, 2018

GREENWICH — XPO Logistics’ returns continue to increase. So does the pressure on the Fortune 500 firm.

While its recent acquisition-fueled growth has earned praise from investment analysts, the Greenwich company now faces major challenges. This fall, it has grappled with numerous accusations of worker mistreatment and discontent among some shareholders. During the same period, its stock value has dropped significantly. XPO has responded that it remains on track to meet its long-term goals.

“There’s a sort of a piling-on effect going on here,” said Kevin McEvoy, an assistant professor of marketing at the University of Connecticut. “Once somebody starts digging and finding things, suddenly everything the company does comes under scrutiny.”

Mounting scrutiny

XPO is among the largest logistics providers in North America. It ranked No. 186 on this year’s Fortune 500 list, with a market value of about $9 billion. It operates in 32 countries, with more than 98,000 employees, according to its website.

The company recorded more than $15 billion in 2017 revenues from operations including trucking and freight brokerage and supply-chain services such as online fulfillment and warehouse management.

Acquisitions have fueled the expansion of XPO, which is headquartered at 5 American Lane, in Greenwich’s northwest corner. Between 2012 and 2015, the company bought 17 U.S. and European firms.

But it has found itself under a Congressional microscope in the wake of recent pieces by The New York Times, Los Angeles Times and PBS’ “NewsHour,” which have reported pregnancy discrimination, unsafe working conditions and benefit denials involving XPO employees.

U.S. Sen. Richard Blumenthal, D-Conn., and eight other senators announced last month that they would investigate the allegations. Two weeks later, a letter calling for a similar probe was signed by nearly 100 Democratic U.S. representatives, including four of Connecticut’s members.

XPO initially disputed the accuracy of the recent coverage, including the New York Times’ reporting that workplace mistreatment contributed to the miscarriages of several pregnant workers at a warehouse in Memphis, Tenn. The facility processes boxes of iPhones and other devices for Verizon Wireless.

But the company soon changed its position.

“We were deeply disturbed by the allegations in recent media coverage concerning one of our warehouses, and we immediately took action to investigate them,” the company said, in part, in a statement posted Dec. 4 on its website.

At the same time, the company announced a new policy for the care and support of pregnant workers that includes paid family leave, pregnancy and postpartum benefits and flexible working arrangements. Eligible workers would receive their regular base wages while they used their accommodations and would still qualify for pay increases during that time.

“Creating a supportive workplace is an ongoing process and one of our highest priorities,” the company also said in its Dec. 4 statement. “Our goal is to continually reinforce a workplace culture based on our values: safe, respectful, entrepreneurial, inclusive and innovative.”

Several Congress members, including Blumenthal and Rosa DeLauro, who represents Connecticut’s third Congressional District, have said they support the new directive.

But not all of them were entirely convinced. Blumenthal said he and other senators were seeking more details from XPO.

“This pregnancy care policy seems to be an improvement; it’s an improvement on paper,” Blumenthal said last week. “I still have a number of concerns about the implementation of the policy. This company has a history of failing to implement policies that may seem impressive in the abstract, but, in the enforcement, are lacking.”

Investor challenge

The Congressional inquiry did not go unnoticed by investors.

Manhattan hedge fund Spruce Point Capital Management last week released a report, questioning the company’s accounting and ability to handle its debt.

In a related Dec. 13 letter to Blumenthal and seven other senators, Spruce Point Managing Partner Ben Axler praised them for investigating XPO. He described XPO’s alleged mistreatment of pregnant workers as “just a symptom of... broader problems.”

“We believe XPO has used sophisticated, aggressive and potentially misleading accounting and financial reporting to inflate its financial performance, thereby allowing its management to earn rich bonuses at the expense of public pensions and institutional investors entrusted with the public’s hard-earned money,” Axler wrote.

XPO rejected Axler’s criticism.

“This short-seller’s letter to the senators is a Hail Mary attempt to generate negative coverage about XPO and create a false narrative that doesn’t exist,” the company said in a statement. “The truth is, several well-respected analysts that cover XPO and our industry have already issued strong rebukes to the report, which is intentionally misleading and filled with significant inaccuracies.”

After the Spruce report was released, the company’s stock dropped Dec. 13 by about 25 percent — falling to around $43. Since it is short-selling its XPO stake, Spruce would gain from a declining price.

Company shares closed Thursday at about $53, less than half of the approximately $115 for which they traded in late September. The decrease could reflect growing caution among investors, as freight demand levels off and concerns grow about an economic slowdown.

In the same period, the S&P 500 stock index — which does not include XPO — has lost about 15 percent of its value.

In a move that could solidify its market value, XPO announced last Friday that it would repurchase up to $1 billion in shares. It represents the company’s first stock buyback.

pschott@scni.com; 203-964-2236; twitter: @paulschott

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