Carrier 1Q Profits to Lag Year Ago as Weather-Related Costs Increase

This story appears in the April 21 print edition of Transport Topics.

First-quarter trucking earnings reports, the first of them released last week, generally are expected to trail the 2013 period because of higher costs to counter cold weather, snow and ice that struck the South, Midwest and Northeast.

Weaker results are expected from most publicly traded truckload and less-than-truckload fleets. Preliminary announcements of lower results were made by Swift Transportation Co. and Universal Truckload Services Inc. Earnings per share are expected to drop about 40% each for the companies, which rank on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers at No. 7 and No. 26, respectively.

First to report, on April 14, was No. 4 J.B. Hunt Transport Services, whose net income slipped 6% in the first quarter to $68.7 million, or 58 cents per share. Revenue rose 9% to $1.41 billion.

Earnings also declined at No. 42 Marten Transport, slipping 27% to $5.3 million, or 16 cents. Revenue fell 3% to $159.4 million, the company’s April 15 report said.

“It was evident that the weather in the first quarter, particularly in January and February, played a significant role in both our growth and profitability,” John Roberts III, CEO of J.B. Hunt, said in a statement.

Some truckload carriers’ guidance improved.

No. 31 Knight Transportation updated its first-quarter earnings projections, saying they would range from 22 cents to 23 cents. That exceeds an earlier forecast of 19 cents to 21 cents, or about 20% above last year’s results.

“The company has a relatively low percentage of dedicated contracts, as compared to many of its peers, which we suspect allowed the company to play the spot market more effectively than most other truckload carriers, which were already locked into contract rates with a larger portion of their customers,” said a report from John Larkin at Stifel, Nicolaus & Co. that noted higher spot market pricing.

In another potential improvement, the earnings per share for

No. 9 Landstar System are expected to climb 4%. Profit growth also is seen for No. 65 P.A.M. Transportation Services and No. 45 Forward Air Corp., and losses should narrow at No. 52 USA Truck.

Larkin also said he expects a “less-than-stellar performance for many of [Knight’s] peers.”

Earnings are expected to drop 10% or more per share at other TL fleets, including No. 44 Celadon Group, No. 47 Heartland Express and No. 13 Werner Enterprises.

First-quarter results also increased the focus on shifting market trends.

Those included carriers gaining the upper hand in rate discussions with shippers, the increasing severity of the driver shortage, greater use of the spot market in response to tight capacity and an upbeat outlook for the rest of 2014.

“Healthy first-quarter 2014 spot truckload demand in seasonally soft January-February is shifting leverage during 2014’s bid negotiations from shippers to carriers,” said a report from analyst Benjamin Hartford at Robert W. Baird & Co.

In fact, Hunt’s Roberts said profit fell because of inability to hire drivers and the related use of other carriers at the dedicated contract unit, where profit fell 30%. Driver costs also rose, he said.

Hunt’s intermodal and dedicated unit earnings slipped, but brokerage unit profits improved, buoyed by spot freight market activity.

Leadership at Swift and Hunt noted that they were optimistic about the rest of the year.

“We are optimistic about the underlying fundamentals we are seeing in the market,” Swift’s President Richard Stocking said. “Capacity remains tight, demand is increasing, [and] we are gaining momentum with pricing.”

Roberts said that “feedback from our customers about their business expectations gives us encouragement that growth should return.”

On the less-than-truckload side, earnings declines also are expected at No. 3 Con-way Inc. and No. 24 Roadrunner Transportation Systems, which both have significant truckload units, as well.

Narrower losses are forecast for both No. 5 YRC Worldwide and No. 12 Arkansas Best Corp.

Old Dominion Freight Line (No. 11) is expected to raise earnings about 7%, and little change is expected at No. 22 Saia Inc.

In general, LTL fundamentals appear to be solid.

“By and large, tonnage is coming in ahead of expectations along with contract renewal pricing at around 3%,” analyst Art Hatfield of Raymond James & Associates Inc. said in a report.

Elsewhere in the freight sector, some improvement is forecast.

No. 1 UPS Inc.’s earnings are expected to rise by about 6%, and truck leasing giant Ryder System (No. 10) also is expected to post a similar percentage of earnings growth.

In the non-asset-based sector — mainly ranked on the Transport Topics Top 50 list of the largest logistics companies in the United States, Canada and Mexico — earnings declines of 5% or more are expected at C.H. Robinson Worldwide (No. 6), Echo Global Logistics (No. 5 of the Top 25 Freight Brokerage Firms) and Hub Group (No. 29) in response to pricing pressure in that sector. XPO Logistics (No. 45) is expected to narrow its loss.