Higher LTL Profits Expected in 4Q, But Slower Growth in TL, Logistics

By Rip Watson, Senior Reporter

This story appears in the Jan. 20 print edition of Transport Topics

Most publicly traded less-than-truckload operators are likely to report improved results when fourth-quarter earnings reports begin this week, but profit growth in other sectors is expected to be slower, analysts predict.

The average earnings estimate on a year-over-year basis, compiled by Bloomberg News, shows four of five LTL fleet owners will show improvement, while 10 of 15 truckload companies should post better results, and seven logistics operators’ results will be little changed.

Among LTL fleets, Arkansas Best Corp. is expected to reverse a loss and post $7.7 million in net income. Two other LTLs — Old Dominion Freight Line and Saia Inc. — will post 28% or higher profit growth, while Con-way is expected to drop. YRC Worldwide is expected to report a wider loss.

LTL market conditions “have been decidedly positive,” Stifel Nicolaus analyst John Larkin said in a report last week, citing growth in a manufacturing index that correlates with LTL volume.

This week’s expected earnings reports also include truckload carriers Marten Transport, set to show a 4% earnings increase; Heartland Express, forecast to rise 18%; and J.B. Hunt Transport Services, with earnings that could rise 13%. The truckload sector’s profit improvement is targeted at about 26% for the 15 publicly traded businesses combined.

“We are modestly positive on fourth-quarter 2013 truckload earnings due to the pickup in economic activity and lower diesel prices in the quarter,” Cowen and Co. analyst Jason Seidl said in a report.

Art Hatfield, a Raymond James analyst, said, “The truckload industry is beginning to resemble normalcy again” after encountering tightened hours-of-service regulations on July 1 that tested fleets’ resiliency.

Fleets such as Universal Truckload Services are among the largest potential percentage gainers. Universal’s projected increase of 32% would take earnings to about $13.5 million.

Another significant shift is expected at USA Truck, where the 2012 fourth-quarter loss of $3.1 million could be slashed to about $206,000.

However, lower earnings are expected at truckload companies Swift Transportation, Werner Enterprises, Celadon Group and Landstar System.

Swift said last month that profit would be hurt by accident claims costs, startup and integration costs tied to new contracts, acquisitions and adding 300 drivers.

“While very excited about the long-term potential associated with each of these items noted above, both the short-term costs, as well as the short-term utilization impact of these items were underestimated,” Swift’s statement said. Its earnings were forecast by analysts to drop about 3% to $51.2 million, or 36 cents per share. Swift also cited higher costs caused by tighter hours-of-service regulations and severe weather.

Conversely, Covenant Transportation Group announced before its scheduled Jan. 30 report that earnings could more than double to as much as $3.26 million, or 22 cents.

“During December, we experienced a significant increase in demand,” Covenant CEO David Parker said, and that increased revenue per mile and miles per tractor.

“The December activity was unusual and related, at least in part, to the compressed period of time between Thanksgiving and Christmas” when Internet and other purchases rose, Parker said in a Jan. 15 statement.

But holiday shipping had a different effect on the package sector, particularly UPS, which expects earnings to improve 3% to $1.33 billion.

“Better-than-expected e-commerce volumes likely produced weaker-than-expected incremental margins for UPS [and, to a lesser extent, FedEx], particularly during in the final days before Christmas,” said a report from Justin Yagerman at Deutsche Bank. “We expect higher wages, rentals, purchased transportation and other costs to offset much of the late incremental volume growth.”

Earnings are expected to rise 10% at truck-leasing specialist Ryder System.

On the logistics side, earnings are expected to change little at C.H. Robinson Worldwide, rise slightly at Echo Global Logistics and Expeditors International of Washington and decline at Hub Group. XPO Logistics’ net loss is expected to narrow.

The quarterly results are expected against the backdrop of freight indicators that have been mostly positive in recent months.

American Trucking Associations’ tonnage index has hovered in record territory, and load data from the trade group are showing improvement across truckload and LTL.

And spot trends on TransCore’s load boards were stronger than normal as the quarter ended, but the closely watched Cass Freight Index, which is primarily based on trucking, declined in October and December.

The 2014 trucking market is expected to be stronger than last year’s.

“While 2013 has been relatively ‘OK’ from a trucking conditions perspective, it’s what could [and is likely to] transpire in 2014 that has us particularly excited,” Hatfield said, citing improved demand.

ATA Chief Economist Bob Costello also is forecasting improvement. He anticipates 2014 truckload shipment growth of up to 2.5% — compared with 0.9% for all of last year — as well as LTL tonnage improving.