Trucking Companies Slide on Sluggish Shipping Demand

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Wall Street Journal / October 22, 2015

Two of the country’s biggest trucking companies reported stronger-than-expected earnings but said tepid shipping demand would weigh on growth for the rest of the year.

Werner Enterprises Inc. and Knight Transportation Inc. both reported better-than 20% year-over-year increases in earnings per diluted share for the third quarter, beating consensus expectations.

Shares in both companies tumbled in trading on Thursday after analysts with UBS Securities LLC downgraded both companies and cut its rating for Swift Transportation Co. , which has not reported third-quarter earnings, on the tepid outlook the companies described.

Werner’s stock was down nearly 4% in mid-day trading at $26.55 a share and Knight, which has been trading this month near its one-year low, fell nearly 7% to $24.05. Swift Transportation, the largest carrier in the U.S. specializing in full truckload services for shippers, fell about 5% to $14.85, its lowest point since April 2013.

Werner reported a $32.1 million net profit in the quarter ending Sept. 30 that was 24% ahead of last year on an 8% gain in trucking revenue, without including surcharges, to $360 million. Knight reported $270 million in revenue for its truckload operations, excluding fuel surcharges, beating the same quarter last year by 18.5%, and earned $30.7 million, that was 21% ahead of the year-ago quarter.

The strong earnings came during the run-up to the busy holiday shopping season, just after many trucking companies raised contract rates earlier this year.

But both companies said demand was faltering compared to strong growth they saw in last year’s fourth quarter. Trucking capacity also has been relatively easily available, which could push down prices—and earnings—for the carriers, analysts said.

Knight Chief Executive Dave Jackson called the freight environment “lukewarm.”

Share prices for many trucking companies have fallen sharply in the last three months. Economists have said that some growth in the truckload sector this spring and summer was due to inventory stockpiling in the second quarter as West Coast ports cleared backlogs of imports that had accumulated during a labor dispute. Retailers and manufacturers now appear to be paring down some of that buildup, which will result in softer demand.

Both Werner and Knight added to their truck fleets in the past year. Knight acquired Barr-Nunn Transportation in October 2014, and while its revenue jumped after that acquisition, it has remained relatively flat in the quarters since. As of the third quarter of this year, Werner had expanded its fleet by 5.5% year-over-year.

Analysts at UBS said in a series of research notes early Thursday that there has been a “meaningful” deceleration in pricing at both Werner and Knight in the third quarter. UBS analysts said a softer freight market and weak spot pricing will make significant growth in earning per share a challenge for truckload companies in 2016.