RXO’s third quarter was marked by a significant margin squeeze and weaker-than-expected profitability, which led to a sharp negative market reaction. Management attributed the underperformance to a sudden tightening of trucking capacity caused by new regulatory enforcement actions, resulting in higher transportation costs that outpaced RXO’s contractual sale rates. CEO Drew Wilkerson acknowledged, “Buy rates increased faster than our contractual sale rates with no meaningful corresponding increase in accretive spot opportunities,” emphasizing how this dynamic compressed margins. The company also highlighted ongoing weakness in automotive freight and a muted demand environment as additional headwinds.
Is now the time to buy RXO? Find out in our full research report (it’s free for active Edge members).
RXO (RXO) Q3 CY2025 Highlights:
- Revenue: $1.42 billion vs analyst estimates of $1.43 billion (36.6% year-on-year growth, in line)
- Adjusted EPS: $0.01 vs analyst estimates of $0.04 ($0.03 miss)
- Adjusted EBITDA: $32 million vs analyst estimates of $35.31 million (2.3% margin, 9.4% miss)
- EBITDA guidance for Q4 CY2025 is $25 million at the midpoint, below analyst estimates of $43.4 million
- Operating Margin: -0.5%, up from -1.9% in the same quarter last year
- Sales Volumes rose 1% year on year (-5% in the same quarter last year)
- Market Capitalization: $2.03 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From RXO’s Q3 Earnings Call
- Stephanie Benjamin Moore (Jefferies) asked if recent regulatory enforcement would sustainably reduce supply and what RXO can do if demand does not recover. CEO Drew Wilkerson sees enforcement as a major structural shift but stressed that demand must return for meaningful improvement. Weisfeld highlighted new cost initiatives and ongoing productivity gains as mitigation steps.
- Brandon Oglenski (Barclays) pressed whether the Coyote acquisition met expectations and how RXO plans to address the EBITDA decline. Wilkerson admitted a pricing misstep in 2025 and committed to regaining market share and executing further cost actions.
- Ravi Shanker (Morgan Stanley) questioned RXO’s differentiation in AI technology amid industry “arms race.” Wilkerson emphasized a focus on tangible results from AI investments, such as enhanced pricing algorithms and automation in last mile services, rather than publicity.
- Christian Wetherbee (Wells Fargo) inquired about further operating expense reductions in a weak market. CFO James Harris cited ongoing automation and real estate optimization, with $30 million in new cost reductions announced, and confirmed more actions are possible.
- Ken Hoexter (Bank of America) sought clarity on why RXO’s margin pressures seemed more acute than peers. Weisfeld attributed this to RXO’s high exposure to large contract shippers and mix differences, as well as regionally concentrated transportation cost increases.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the degree to which regulatory enforcement continues to reduce trucking capacity, (2) any early signs of freight demand recovery across key verticals, and (3) RXO’s ability to realize further cost savings and operational efficiencies, especially through technology investments. The pace of margin recovery and client retention in enterprise contracts will be additional markers of progress.
RXO currently trades at $12.35, down from $17.64 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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