At a time when investor attention is squarely focused on the "Magnificent Seven" and AI stocks, it's worth remembering that you can find winners in almost any sector of the stock market. Take XPO (XPO 0.85%) for example. The nation's No. 3 less-than-truckload (LTL) transportation provider is a staple of the S&P MidCap 400, and it's long been an outperformer on the stock market.

In 2021, it successfully spun off GXO Logistics, now the largest pure-play contract logistics company in the world, and followed that up with a spin-off of the RXO truck brokerage business. Over the long term, XPO intends to be a pure-play North American LTL company, though its European Transportation segment has performed well lately.

Last year, XPO stock jumped 50%, and the industrial stock is off to a good start in 2025 despite broader headwinds in the industry. Year to date, it's gained 12%, and it just popped on its fourth-quarter earnings report.

Gaining market share and improving margins

In an LTL environment with declining volume, XPO still delivered strong results in the quarter. Overall revenue was down 1% to $1.92 billion, matching estimates, but a look under the hood shows the performance was stronger than that figure indicates.

In North American LTL, tonnage per day was down 5.7% and shipments per day fell 4.4%. This was in line with a decline in the industry, as industry leader Old Dominion Freight Line reported similar results.

However, XPO delivered another increase in yield, or pricing, which was up 6.3% in the quarter, excluding fuel. That improvement in pricing is a reflection of the steps the company has taken to improve customer service, including reducing its damage claims ratio to just 0.2% of shipments, down from 1.2% three years ago before it began its LTL 2.0 strategy.

In an interview with The Motley Fool, XPO Chief Strategy Officer Ali Faghri credited the improvement in yield to the lower damage claims as well as 11 consecutive quarters of improving on-time performance.

XPO has continued to expand its capacity and invest in a newer fleet so it's ready for the recovery in demand, which management expects to come soon. Faghri noted that the ISM manufacturing index continues to show improvement, which tends to be a good indicator for the industrial economy. Meanwhile, margins continue to improve as well, keeping the company on track to reduce its operating ratio (the inverse of operating margin) to 81% or lower by 2027.

For the fourth quarter, XPO's operating ratio fell 30 basis points to 86.2%, and for the year, it fell 260 basis points to 84.8%. Reducing the number of outsourced linehaul miles in its network has also helped lower costs. On the bottom line, XPO also soared past estimates, posting adjusted earnings per share of $0.89, up from $0.77 in the quarter a year ago and well ahead of the consensus at $0.65.

Can XPO keep gaining?

XPO stock jumped 8% on the the latest earnings report, and the company seems well-positioned for further gains this year because it was able to drive an improvement in profitability even as volume declined. The manufacturing purchasing managers index from the ISM came in at 50.9 in January, indicating a slight expansion, and assuming inflation continues to cool, demand should continue to rebound.

XPO has made significant improvements to the underlying business and it benefits from operating in an industry with a lot of leverage. Improvement in capacity utilization can make a significant difference on the bottom line.

If the industrial economy bounces back this year, XPO stock looks poised for another surge. Pricing and customer satisfaction are up, and its efficiencies are improving. The transportation stock continues to have substantial upside over the long term, and volume is expected to grow steadily over the long term as well.