Khrom Investments Fund, LP on GXO Logistics

Khrom sees GXO's strategic reset under CEO Patrick Kelleher as an opportunity to improve organic growth, customer retention, pricing discipline and margins. The sales pipeline has expanded to a record level and new business wins have accelerated, while contracted revenue gives the fund greater visibility into future growth despite softer recent organic growth. A central part of the thesis is that GXO's margin gap with peers is largely self-inflicted rather than structural, leaving room for procurement savings, lower overhead, better site productivity and a mix shift toward higher-value end markets. Khrom also expects warehouse automation to increase the value of outsourcing to a specialist integrator such as GXO, with a large majority of the global contract logistics market still insourced. The fund believes fears around Amazon's supply-chain offering are overstated because GXO's core operations are more bespoke and the directly overlapping GXO Direct business is only a small portion of revenue. If execution improves, Khrom believes EPS can compound at a high-teens rate for many years.