Analysts Express Caution Over 4Q Trucking Results

This story appears in the Jan. 14 print edition of Transport Topics.

Stock market analysts are cautious about trucking’s earnings prospects for this year after the steady improvement in industry profits that began in 2010 stalled in the fourth quarter of 2012.

That slowdown in revenue improvement, based on analysts’ commentary and Transport Topics’ review of fourth-quarter earnings estimates compiled by Bloomberg News, is expected to play out as earnings reports are released next week.

Earnings growth was evident in the fourth quarter of 2011, when 25 of 28 publicly traded truckers’ earnings exceeded the year-earlier period. However, in the fourth quarter of 2012, only 14 of those companies are expected to top the 2011 period.

“2013 will be a fairly mediocre freight year,” BB&T Capital Markets analyst Thom Albrecht told TT last week.

He said he anticipates 2013 will continue the 2011-2012 pattern of declining truckload shipments, based on American Trucking Associations’ statistics, even though tonnage increased because more heavyweight freight moved.

“All eyes will be on commentary in earnings reports,” Jason Seidl, a Dahlman Rose analyst, told TT. “Everyone is hoping that companies will be saying they hope freight will be going from ‘OK’ in the fourth quarter to somewhat better than ‘OK.’ ”

Fleets could benefit from stable or slightly lower fuel prices, and rates could be helped by the late 2012 capacity squeeze in the Northeast that followed Superstorm Sandy.

Another benefit, he said, is movement of freight in 2013 that was delayed last year as shippers awaited the outcome of “fiscal cliff” talks.

“Enough people were talking about that uncertainty that it must have had some effect on freight,” Seidl said, adding that recovery freight related to Sandy also should help in 2013.

Among the industry stalwarts expected to report lower profits are Werner Enterprises and Landstar System. Other truckload earnings are expected to drop — with the exception of a return to profit at Covenant Transportation.

Earnings at Werner and Swift Transportation will be cushioned by a steady flow of retail freight, Albrecht said, but results likely will be worse for privately held truckload fleets that carry fewer consumer goods.

Other individual companies are being watched, Seidl said. ABF Freight System’s quarterly earnings are less important, he said, than insight into the outcome of its Teamsters union contract talks. Vitran Corp. will be watched for progress in reversing losses in its U.S. operation, Seidl added.

In the less-than-truckload market, Albrecht said only Old Dominion Freight Line improved tonnage and shipment levels during the fourth quarter, while competitors suffered as industrial production slipped late in the year.

Earnings for other LTLs are expected to rise because of higher rates. Albrecht said weakening industrial production levels during 2012 are putting pressure on results. Analysts disagreed on the possibility of a major capacity crunch in 2013.

Shippers fear aging driver corps, restrictive safety rules and rising costs “will soon create a truckload capacity shortage,” said John Larkin, a Stifel, Nicolaus & Co. analyst.

“If the economy continues to grow, capacity will tighten,” Seidl said. “I wouldn’t want to be a shipper looking for capacity if the economy picks up very much.”

But Albrecht said the chances of a capacity shortage were between “slim and none” for most of the year.

Exceptions, he said, will be tight capacity during the second quarter as beverage and other consumer goods shipments peak and during much of the year on cross-border routes with Canada and Mexico.

Dedicated contract freight’s outlook is uncertain as well.

“Shippers are increasingly looking to lock in base load capacity” with predictable rates through dedicated freight arrangements, Larkin said.

“With no perceived, prolonged capacity crunch seen as imminent, the need to lock up trucks” through dedicated contract arrangements has slowed, Albrecht said.

Another question is the longer-term effects of late 2012 results and 2013 freight volume and rate trends.

“The key issue to focus on is how the weak exit rate for truckload volumes and spot rates will impact the all-important first-quarter contract negotiation season,” said Jefferies & Co. analyst Peter Nesvold.

“Shippers at this point do realize that capacity can tighten on a dime, and that the truckload carriers need [a] roughly 2% rate [increase] on average industrywide just to offset cost creep.” Nesvold said.

Rates are still another issue. “I am concerned that pricing is going to decelerate more than people are thinking it will for truckload fleets,” Albrecht told TT, citing estimates that rates could rise as much as 3%.

He believes rates could range from unchanged to 2% in the truckload sector because those fleets also will feel a manufacturing slowdown.