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Earnings Expected to Increase on Higher Rates, Lower Diesel Prices

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By Rip Watson, Senior Reporter
This story appears in the July 16 print edition of Transport Topics.

Second-quarter trucking earnings are expected to show that higher freight rates and lower fuel prices helped most publicly traded fleets notch better results than a year ago, analysts said. Earnings reports, which begin rolling in this week, are expected to rise at 21 of 27 carriers on a year-over-year basis, based on a Transport Topics review of analyst estimates compiled by Bloomberg News. The increases should stretch across truckload, less-than-truckload, third-party logistics operators and include industry giant UPS Inc.

“There should be benefits from the decline in diesel prices,” Jason Seidl, a Dahlman Rose & Co. analyst told TT on July 10. “It’s always welcome when prices come down.” The diesel drop of about 40 cents per gallon, or 10%, from mid-May to late June lowers carrier expenses. Another benefit, Seidl said, is the catch-up in fuel surcharge recoveries for fleets whose collections were based on prices higher than what they actually paid for diesel as the price fell.

Trucking profits began to pick up late in 2009 as the recession eased, coinciding with the upturn in tonnage that has continued for 30 consecutive months on a year-to-year basis, according to American Trucking Associations. Less-than-truckload carriers’ results are expected to improve faster than their truckload counterparts because rates rose about 5% on average in the LTL business, while the average truckload rate increase was around 3%, Seidl said. Among LTL carriers, earnings are expected to rise the most at Saia Inc. and Con-way Inc. Saia’s profit is expected to more than double to $8.4 million, with Con-way projected to jump 34% to $37.7 million. Based on forecasts, earnings also should gain 12% at Old Dominion Freight Line and 33% at Roadrunner Transportation Systems, which is primarily an LTL company.

Only Arkansas Best Corp.’s LTL unit — ABF Freight System — is forecast to lag, with a 20% earnings decline to $4.1 million. Vitran Inc. is expected to re­verse the second-quarter 2011 loss and post a slight profit of about $160,000. Seidl said the LTL rate trend should accelerate following the latest round of widespread price increases, most at 6.9%, that appear to be generally accepted by shippers. At UPS, owner of the fourth-largest LTL carrier, where rates rose 5.9%, net income for the entire company as a whole is likely to climb 11% to $1.14 billion.

For truckload carriers, earnings are expected to show more modest increases, mostly in the 10%-to-20% range. For example, Swift’s net in­come is projected to rise 22% to $30.9 million and Werner Enterprises is pegged to climb 10% to $30.8 million. In addition, Landstar System is in line for net income of $34.9 million, up 19%, and a 15% gain is expected at Knight Transportation to $18.4 million. However, profits are expected to fall at truckload carriers Heartland Express, Covenant Transportation and USA Truck. Seidl said he expects more truckload carriers would follow Swift and announce pay increases that will dilute the effects of rate and diesel price changes.

While earnings are generally expected to increase, Seidl told TT there will be an intense focus on carrier commentary about July freight demand in light of disappointing reports about last month, which typically is the busiest of the quarter. “June demand was a real concern,” Seidl said, following freight levels that were “decent” in May. “It was weaker than many people thought it would be.”

ATA has not yet released June tonnage. May’s increase was 4.1%, but the trade group’s Chief Economist Bob Costello cautioned that the growth pace would soften as the year unfolded. A report from Thom Albrecht, a BB&T Capital Markets analyst, added a regional dimension to second-quarter demand, while noting that June was the quarter’s busiest month even though it lacked the freight surge seen last year.

“The Southeast and to a lesser extent the Northeast have been very busy, with the Southwest experiencing very tight capacity,” Albrecht’s report said.

“The Midwest has been inconsistent and even occasionally slow, while the West has been better than a year ago,” he added. “Western freight markets were quite weak until the third quarter of 2011.” Profits at third-party logistics companies also are expected to improve, including 6% higher profit of $115.7 million at C.H. Robinson Worldwide and 23% growth at both Echo Global Logistics and Hub Group. Only Pacer Inc.’s profit is predicted to fall in that sector. Ryder System Inc.’s earnings are expected to increase a modest 2% to $47.8 million, following the company’s announcement late last month that earnings will be tempered by lower demand.

Source: Transport Topics