Trucking’s Profits Are Expected to Increase for Fourth Straight Quarter, Analysts Say

This story appears in the Jan. 10 print edition of Transport Topics.

Every public trucking company is expected to post improved year-over-year earnings for the fourth quarter in a row, setting the stage for solid profits growth this year.

Based on analysts’ profit estimates compiled by Bloomberg News, all 22 publicly traded carriers should exceed their fourth-quarter 2009 performance. On average, improvement from quarter to quarter will top 40%.

Only YRC Worldwide is expected to have a net loss this year, as well as in the fourth quarter of 2010.

Its fourth-quarter net loss is estimated at about $61 million, with a full year 2011 net loss of nearly $200 million expected.

“We are on the cusp of the best years the trucking industry has seen since deregulation,” said John Larkin, analyst with Stifel, Nicolaus & Co. in Baltimore. He told Transport Topics Jan. 4 that profits could grow from year-to-year through 2013.

A confluence of several factors is driving the expected 2011 improvement.

“The combination of the capacity reductions caused by fleet downsizings and fleet failures over the past five years, along with the additional capacity reductions that are about to be driven by federally mandated safety regulations, will likely combine with accelerating economic recovery,” Larkin said.

He said profits also will continue rising because of 2011 rate increases of 4% or more, in combination with improved cost control and equipment utilization.

Capacity will be kept in line by changes, such as the CSA program, that will trim the driver pool and freight capacity, Larkin said. At the same time, demand probably will rise about 3% and tip 2010’s equilibrium between supply and demand in favor of fleets.

Larkin said he expects 3% growth in gross domestic product this year, after economists boosted their 2011 forecasts late in 2010.

While others also said they expect earnings and economic growth, some were more cautious.

“The pace of inventory restocking has slowed materially from mid-2010, and recent reported freight statistics generally slowed beyond normal seasonality the last few months of the year,” Edward Wolfe at Wolfe Trahan & Co., New York, said in a Jan. 3 report.

Analyst Jon Langenfeld of Robert W. Baird & Co. Inc. was more optimistic, projecting 2011 volume improvement in the 2% to 4% range, driven by a similar amount of economic growth.

“Expect freight demand to begin to normalize in 2011 and remain positive,” he said. “The industry can support at least two years of 5% plus rate growth to return to previous peak levels” for freight rates.

Deutsche Bank analyst Justin Yagerman also was upbeat, citing a drop-off in reported inventory and a pickup in the purchasing managers’ index, or PMI, of expected economic activity that rose from November to December.

Both reports came from the Institute for Supply Management trade group, whose purchasing index hit its highest level since June.

“The solid PMI reading and low inventory levels are positives for trucking,” Yagerman said in his report.

Larkin tied part of the optimism to the Republicans’ resuming control of the U.S. House of Representatives this month.

“The private sector has come under attack over the last two years with a whole laundry list of anti-business legislation,” Larkin said, citing health care.

“People were frightened to death by that,” he said.

Profit estimates compiled by Bloomberg News for the full year 2011 show stronger results for every carrier and an end to losses at Arkansas Best Corp.’s ABF Freight System, P.A.M. Transportation and USA Truck during the fourth quarter of 2010.

Profits in 2011 could climb above $16 million at Arkansas Best and top $3 million at both USA Truck and P.A.M., analysts said.

When earnings announcements begin later this month, ABF is expected to show a loss of about $2 million in the fourth quarter, compared with $22.1 million in the 2009 quarter.

P.A.M. is expected to cut its fourth-quarter loss to $550,000 from $3.9 million, and USA Truck should lose $425,000, but less than the $2.5 million loss in the 2009 period.

Saia Inc. and Vitran Inc. are projected to announce the biggest fourth-quarter earnings improvements and reverse 2009-period losses.

Saia should earn about $1.3 million, compared with a $4.3 million loss, while Vitran’s fourth-quarter earnings should be $4.1 million, after a $2.3 million loss in the prior-year period. Both companies’ 2011 earnings could top $14 million.