Swift Transportation to Halt Fleet Growth on Weak Demand, Pricing

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Wall Street Journal / October 27, 2015

Trucking industry leader acts after poor outlook sends share price tumbling

Swift Transportation Co. , responding to weak freight demand and pricing that sent the trucking company’s share price sliding, said Tuesday it would halt the expansion of its fleet.

“We are extremely disappointed with the current stock price,” Jerry Moyes, Swift’s chief executive, said on an earnings call with analysts. “Effective immediately we will enter into a zero fleet growth mode. Until we reach a best in class utilization level, we will not be adding any new equipment.” He added that the company is considering reducing its count of tractor-trailers.

The announcement followed a weak earnings report released Monday by Swift, the largest carrier in the full-truckload market, according to SJ Consulting Group. Swift’s earnings before interest, taxes, depreciation and amortization fell to $137.2 million in the third quarter, down 11% compared with the prior-year quarter. Revenue excluding fuel surcharges grew by 8.3% to $955 million over the same period.

Swift’s shares were up more than 3% to $15.40 in midday trading Tuesday after falling about 4% earlier in the day.

The Phoenix-based company warned last month that its profits would come in lower than previously expected, largely because of the changing preferences of its retailer and manufacturer customers. Many trucking companies that rely on premium freight rates during busy times of year such as the coming holiday shopping season are seeing shippers switch to long-term contracts, Swift said.

In addition, truckload operators that typically carry shipments for one customer at a time have seen demand sag as retailers have scaled back inventory replenishment after overstocking earlier in the year.

The average number of trucks Swift had in operation in the third quarter expanded by 831 trucks, Swift said, 4.8% more than a year ago, bringing the average number of trucks the company ran in the quarter to 13,469.

Analysts said Swift’s move to halt capacity growth is aimed at bolstering freight rates amid a soft patch in the economy that has hurt transportation companies across the board.

“In the past, Swift used to be a grow-grow-grow at any cost type of company. Investors soured on that when it wasn’t good for their profitability,” said Jason Seidl of Cowen & Co. “If one of the largest carriers in the industry is taking capacity out of the marketplace, other carriers are likely to do the same.”

Swift said its board of directors also approved the repurchase of up to $100 million of common stock and said it would fund the buying through free cash flow, reduced planned capital spending and borrowing.