Most Carriers Improve 4Q Earnings, Buoyed by Rate Increases, Freight Growth

Most carriers once again improved earnings during the fourth quarter, riding a wave of rate increases and modest but steady freight growth, two trends that are expected to continue in 2012.

When publicly traded fleets begin reporting earnings later this month, profits will have improved for the ninth consecutive quarter, based on a Transport Topics review of analyst estimates compiled by Bloomberg News. In total, 25 of 29 freight companies should report better results on a year-to-year basis, with a collective increase of about 40%.

“Truckload carriers benefited from 4% [rate] growth, net of fuel in 2011,” said a Jan. 5 report from Wolfe Trahan & Co., citing stable freight volumes and stronger pricing leverage for less-than-truckload fleets, as well. “Expect improved utilization from most truckload carriers starting in the fourth quarter and into 2012.”

A separate Wolfe Trahan report underlined the positive overall trend, noting that three privately held for-hire fleets, which weren’t identified, reported that volume improved throughout the quarter, along with improving rates.

“The carriers expect capacity to tighten seasonally through the year, and they anticipate similar rate increases in 2012 as last year, in the range of 4% to 6% on average,” the report said.

The volume growth has been reflected in American Trucking Associations’ tonnage index, which rose about 6% year-to-year in both October and November.

Two of the largest profit increases in the fourth quarter  are expected in the less-than-truckload sector. Net income is expected to jump to $20 million at Con-way Inc. from just $2.39 million a year earlier. Arkansas Best Corp. should post a $6.3 million profit, reversing a year-earlier loss.

In the truckload sector, earnings are expected to more than double to $3.35 million at bulk carrier Quality Distribution, which is benefiting from stronger demand in the tank sector and energy-related exploration. Earnings likely will double at Celadon Group to $5.4 million, analysts said they believe.

More modest profit growth is expected at the largest U.S. and Canadian for-hire carriers in Transport Topics Top 100 list.

The percentage increases in-clude an estimated 16% at No. 1 UPS to $1.2 billion and 26% at No. 5 J.B. Hunt Transport to $68 million. Others in the Top 10 include a 15% increase at No. 7 Swift Transportation to $32.2 million and 26% growth at No. 8 Landstar System to $31 million.

The only fleets whose earnings are expected to decline are Vitran, Covenant Group, Patriot Transportation and P.A.M. Transportation. The declines at Vitran and P.A.M. were forecast at about 10%, and analysts predicted Covenant will post a $1.1 million loss after a profitable 2010 final quarter.

Earnings also are expected to grow among companies that rely on trucking as they provide third-party logistics services.

Largest broker C.H. Robinson Worldwide should raise net income about 10% to $101 million, but smaller companies in the group — such as Hub Group, Pacer International and others — are pegged to post earnings growth in the range of 20% to 40%.

Other analysts agreed that more growth is in store.

“The industry is poised to benefit from modest growth due to capacity constraints,” Deutsche Bank analyst Justin Yagerman said a Jan. 10 report. He also said he believes a potential improvement in the long-depressed housing market could help buoy the trucking sector.

Benjamin Hartford, an analyst for Robert W. Baird & Co., said he believes truckload rate growth will continue this year at a 2%-to-4% pace, slower than the 2011 increases that were in the 4%-to-5% range.

The rate growth picture isn’t uniform across all trucking sectors, Thom Albrecht, a BB&T Capital Markets analyst, noted. In his report, he said rate increases were strongest, topping 5% at flatbed, refrigerated and tank carriers.

In addition to helping Quality in the tank sector and Landstar, which generates one-third of revenue from flatbeds, that trend also should buoy results at refrigerated carrier Marten Transport and steel-focused hauler Universal Truckload Services. Universal’s earnings are expected to rise 45% to $4.5 million, while Marten climbs 17% to $6.2 million.

Albrecht also noted LTL and longhaul dry van rates rose in the 5% range last year, while regional truckload fleets’ increases trailed at 3% to 3.5%.

Other analysts said they believe the pricing picture could be far stronger this year.

“The real story is how strong pricing is going to be in 2012,” Avondale Partners analyst Donald Broughton told TT. He said he expects rate in-creases would be even higher than other financial analysts estimated, citing reports by load board operator TransCore and Cass Information Systems that suggested rates improved 6% to 9% during the quarter.

A counterbalance, Broughton said, would be higher costs for the installation of onboard recorders.