RXO reported third-quarter results that showed solid top-line growth but a squeeze on margins driven by higher transportation costs and softer demand, prompting cautious guidance and renewed focus on technology and cost cuts. Revenue rose strongly year over year while adjusted profits missed expectations and management pointed to regulatory-driven capacity shifts as a major headwind. The company is betting on AI, automation, and expense reductions to bridge the gap while watching for any signs that freight volumes recover. Investors should watch capacity dynamics, demand trends, and execution of cost programs as the story unfolds.
RXO posted revenue of $1.42 billion for the quarter, roughly matching expectations and delivering 36.6% year-over-year growth. Adjusted EPS landed at $0.01, below consensus, and adjusted EBITDA came in at $32 million, a notable miss on margin expectations. Sales volumes showed a modest recovery, rising about 1% year over year, while operating margin improved slightly but remained negative.
Management flagged a sharp margin squeeze that drove the negative market reaction after the print, and that squeeze is central to the story going into the next quarter. Management explained it as a function of rapidly rising buy rates that outpaced contracted sale rates, compressed further by limited spot opportunities. As Drew Wilkerson put it, “Buy rates increased faster than our contractual sale rates with no meaningful corresponding increase in accretive spot opportunities,” a blunt statement that captures how input costs have outpaced revenue flexibility.
Regulatory enforcement emerged as a practical culprit behind the capacity pressure, not just a theoretical risk. Federal actions aimed at non-domiciled commercial drivers and English proficiency rules led to sudden reductions in available truck capacity in some regions. Those exits forced RXO to pay higher purchase transportation costs, and the company did not have immediate scope to pass those increases through to clients.
The mix of freight also hurt results, with the automotive vertical taking a visible toll on margins. Management disclosed a roughly $5 million year-over-year margin hit from automotive, and they pointed to ongoing softness in managed expedite freight. Last-mile demand also diverged from historical patterns, with big and bulky retail weakening after Labor Day and dragging on complementary services performance.
On the cost side RXO has been aggressive and tangible about reductions and technology investments that aim to offset some of the pressure. The firm reports over $155 million of annualized expense reductions achieved through headcount optimization, automation, and integration work, plus a fresh $30 million in new cost actions announced during the quarter. Technology and AI work are central to the plan, with the company noting roughly 38% productivity improvement over two years from pricing models and automation.
Guidance for the next quarter is conservative, reflecting management’s caution about demand and capacity dynamics. Management warned that they are “assuming a muted peak season and weak demand trends across all our lines of business,” underscoring limited visibility on a rebound and signaling more pressure on near-term profitability. That posture leaves upside dependent on either a demand surprise or faster realization of cost-out benefits.
Watch a handful of concrete indicators that will determine whether this is a temporary trough or something deeper.
- Persistence of regulatory enforcement and the resulting impact on trucking capacity and purchased transportation costs.
- Early signs of freight demand recovery across automotive, big and bulky retail, and enterprise contracts.
- Execution pace and magnitude of realized cost savings and productivity gains from AI and automation initiatives.
Shares have already reflected the disappointment, trading well below pre-earnings levels, which raises the classic question of valuation versus execution risk. The market reaction shows investors are weighing the durability of the margin pressure against the company’s track record in cutting costs and integrating operations. Whether the stock is a buying opportunity hinges on expected timing and size of a recovery versus the pace at which RXO can convert technology-led productivity into margins.
Execution, not narrative, will decide RXO’s next moves: can management hold client relationships through this period while driving the automation and expense programs that materially improve margins? The next few quarters will produce clear signals on client retention, on the durability of regulatory capacity effects, and on whether the AI investments translate into measurable margin expansion. Investors should stay focused on those operational metrics rather than headlines alone.
