RXO Inc. (RXO) is heading into the fourth quarter with a problem: costs are rising faster than business is recovering, and the math isn't working out in their favor. The freight broker is facing mounting margin pressure as truck capacity tightens and spot rates climb, pushing expected results below the company's own guidance.

When Costs Rise Faster Than Revenue

Bank of America Securities took a harder look at the numbers and didn't love what they saw. The firm kept its Neutral rating and $16 price target intact, but analyst Ken Hoexter made some meaningful cuts to his near-term forecasts. He now expects fourth quarter 2025 adjusted EBITDA of just $18 million, down from his previous $25 million estimate and below RXO's own $20-$30 million target range.

The core issue? Truck capacity is tightening more aggressively than anticipated, which means freight brokers like RXO have to pay carriers more to secure capacity. But demand isn't recovering fast enough to offset those higher costs, creating a squeeze on profitability that could persist longer than the market expected.

Why Truck Capacity Is Getting Tight

Hoexter pointed to several regulatory enforcement actions that are effectively shrinking the pool of available trucks. Requirements around English Language Proficiency for drivers, restrictions on non-domiciled commercial driver's licenses, and crackdowns on noncompliant electronic logging devices are all contributing to tighter capacity.

The result shows up in the numbers. Dry van spot pricing excluding fuel recently climbed to $1.73 per mile from $1.65 the prior week, continuing several weeks of unusually strong sequential gains. While tender rejection rates have improved to roughly 10%, Hoexter noted those levels need to hold steady before spot market volumes really pick up steam.

Margin Targets Looking Harder to Hit

Reflecting the tougher operating environment, Hoexter cut his fourth quarter brokerage gross margin estimate to 11.9% from 12.5%, which sits below RXO's guidance range of 12-13%. The culprit is higher buy rates, compounded by the company's heavy exposure to contractual truckload business, which offers less flexibility to pass through cost increases.

He also reduced his earnings forecasts, now expecting a fourth quarter 2025 loss of 5 cents per share and 2026 profit of 15 cents per share. His 2027 EPS estimate held at 45 cents. Hoexter values RXO at 13.5 times his 2027 EV/EBITDA estimate, treating 2027 as a mid-cycle benchmark year. Key variables to watch include how long tight capacity conditions last, whether spot market recovery materializes, and whether the company can deliver on its productivity and technology improvement plans.

RXO Price Action: RXO shares were down 4.10% at $14.04 at the time of publication on Wednesday.