Most Publicly Traded Fleets Expect Gains In Earnings for Eighth Straight Quarter

Strong pricing and lower fuel costs should help nearly all publicly traded fleets to report improved profits for an eighth-consecutive quarter, as third-quarter earnings reports roll in over the next several weeks.

Just three of the 27 carriers are expected to report lower profits, while several of the other 24 companies, such as Old Dominion Freight Line, should post record earnings, based on Transport Topics’ review of forecasts compiled by Bloomberg News.

Also contributing to earnings growth is trucking demand, which has remained relatively steady, particularly in the less-than-truckload sector, despite a faltering economy, analysts said.

“Yield gains for the [LTL] group are expected to continue to accelerate with a 10% improvement over the same period last year,” said a report from Morgan Keegan analysts Arthur Hatfield and Chaz Jones. “Despite a little disappointment on the demand front, [truckload] contract rate expectations for 2011 have not changed materially, with most truckload carriers still expecting 3%-5% improvement year-over-year.”

An analyst report from Wolfe Trahan & Co. also cited higher rates, or yield, as well as the benefits of both lower prices and fuel surcharge collections that drop more slowly than diesel costs when fuel prices decline.

On the less-than-truckload front, pricing growth is expected to power higher earnings for six of the seven publicly traded fleets. On average, profit is expected to more than double.

One of the sharpest improvements is expected for Arkansas Best Corp., owner of ABF Freight System, which is forecast to swing to a profit of approximately $8.1 million from a loss in last year’s third quarter. CEO Judy McReynolds said at investment conferences last month that revenue per hundred pounds of freight was up 16%.

Other prominent gainers include Con-way Inc., with LTL generating most of its revenue. Con-way’s profit is expected to more than double to the $29 million range in the third quarter.

Old Dominion Freight Line Inc. is projected to boost its earnings 44% to more than $36 million. Roadrunner Transportation earnings are pegged to rise 60% to $7.6 million. Vitran Inc. is the only exception to the LTL trend, with earnings expected to drop about 75% to $500,000. The company posted a second-quarter loss after an acquisition, but is expected to return to profitability as operations improve, said a report by Dahlman Rose analyst Jason Seidl. However, the results still lag behind 2010’s third quarter.

In the truckload group of 13 carriers, all but Covenant Transport Group and USA Truck are expected to report better earnings. The increase for the truckload 13 fleets as a whole topped 45%.

Tank carrier Quality Distribution Inc. is expected to double net income to nearly $5 million, and Werner Enterprises Inc. is expected to earn almost $30 million and post the second consecutive quarter of record earnings.

The earnings upswing that began in the fourth quarter of 2009 as the recession eased also has been sustained by reductions in capacity that have brought supply and demand into balance despite difficulties such as tougher government regulation and an aging fleet, Hatfield and Jones’ report said.

“At the end of the day, freight is OK and the for-hire truckload fleet has been reduced by roughly 12%,” their report said. “While volume growth has clearly slowed, none of the carriers we surveyed pointed to a material pullback.”

The largest trucker, UPS Inc., is forecast to earn $1 billion, a 14% increase. Rival FedEx Corp. last month reported a 22% rise in its fiscal first quarter to $464 million.

Earnings improvement also is forecast for logistics operators that rely on trucking, including C.H. Robinson Worldwide Hub Group, Pacer International and Echo Global Logistics.

Truck-leasing specialist Ryder System Inc. is expected to have 42% higher earnings and airfreight trucker Forward Air is expected to raise profit 29%.

Wolfe Trahan’s report cautioned that the LTL carriers may not be able to sustain the current profit growth pace. “We suspect that recent strong pricing gains for LTLs will not be sustainable next year, as historically the LTLs become more competitive when they fight for volumes to fill their fixed cost networks,” their report said.