January 31, 2017 10:05 AM, EST

Roadrunner Admits to Accounting Error; Analysts Suspend Recommendations

Roadrunner Transportation Systems Inc.

Roadrunner Transportation Systems Inc. announced that it must fix quarterly and annual earnings reports from 2014 until the present due to accounting errors, two months after the company admitted to miscalculating the leverage ratio on its debt.

Industry analysts were quick to say the news was a significant blow to investor confidence, and it would force them to re-evaluate their recommendations of the stock to clients.

Roadrunner ranks No. 16 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.

“Roadrunner just came out and said you can’t trust any of its audited financial statements from the 2014 10-K to present. For that reason, we no longer have a reasonable basis for producing estimates or valuing the company and are suspending our rating on the shares,” Stifel Nicolas & Co. analyst Dave Ross said in a note to investors.

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Ross told clients that a wider probe of the trucking company from accounting firm Deloitte & Touche likely would find more errors.

Robert W. Baird & Co. analyst Benjamin Hartford wrote in an analyst note to investors that estimates and price targets for the stock would be suspended until additional information was provided.

The latest accounting error involved overstatements, mainly due to unrecorded expenses regarding subsidiaries Morgan Southern and Bruenger, both purchased in 2011 for a combined $30 million.

Ross told investors that it was particularly concerning because the updated expenses total $20 million and $25 million, calling it a “whoops” in his analyst note.

“These errors principally relate to unrecorded expenses from unreconciled balance sheet accounts including cash, driver and other receivables, and linehaul and other driver payables,” the company said in a presentation and conference call Jan. 31. “We have engaged the services of experienced legal counsel and forensic accountants who continue to investigate what caused these errors, and this review is ongoing. At this point, there is no conclusion of an intentional misstatement or fraud.”

The Cudahy, Wisconsin, carrier will refile the annual earnings report for 2015 and quarterly earnings reports from 2016 with the Securities and Exchange Commission, but a timeline for the process wasn't provided. Roadrunner also delayed reporting its fourth-quarter earnings until at least March due to the two errors. However, the company said the results will include a goodwill impairment charge between $175 million to $200 million, which will result in a net loss. Before the announcement, analysts forecast that Roadrunner would earn $6 million in profits.

“In conjunction with the investigation, we are reassessing our internal controls over financial reporting and compliance program and expect to make changes to enhance our control environment and prevent these types of errors from recurring,” the company said.