Analysts are cutting earnings estimates for truckload corporations heading into first-quarter reports. Acknowledging decent demand, analysts cited an overhang of truck capability, which is constraining pricing and margins, as the rationale for the most recent round of revisions.
“We exit 1Q very similar to we entered it for truckload-related transports — feeling okay about volumes but bad about pricing and expecting downward EPS revisions for businesses that live to tell the tale this annual pricing cycle,” Susquehanna Financial Group’s Bascome Majors told clients on Monday.
He said pricing pressures alongside “regular but not spectacular volumes” will weigh on first-quarter numbers, which he cut by 26% to 32% for the TL carriers he follows. His recent TL and intermodal forecasts “remain meaningfully below” consensus estimates, but his outlook for freight brokers is more in keeping with the averages.
Majors cut his first-quarter earnings-per-share estimate for intermodal provider J.B. Hunt (NASDAQ: JBHT) by 11% to $1.40. Management at the corporate said at an investor conference last month that annual price negotiations were tougher than expected. Werner Enterprises (NASDAQ: WERN) echoed the sentiment at the identical event, noting a “very competitive” begin to bid season for its one-way TL business.
Spot rates jumped in January as winter storms sidelined some fleets for days. The speed bump from diminished available capability was short-lived, nevertheless, with spot rates falling back to where they ended 2023. The temporary rate reprieve only impacted a small portion of huge carriers’ customer books as a lot of the freight they haul is under annual agreements. The winter weather did leave a mark on the quarter, negatively impacting equipment utilization and driving operating costs higher.
Also, analysts have indicated that channel checks and conversations with management teams suggest March will likely be softer than expected. Shippers have toggled back to a just-in-time inventory strategy, knowing the market is loose and that ought to consumer buying trends suddenly indicate the necessity for more merchandise, trucks are available to quickly accommodate.
Nonetheless, Schneider National (NYSE: SNDR) President and CEO Mark Rourke recently said it was somewhat encouraging to see the spot market react so sharply to inclement weather. He believes the response could possibly be indicative of the quantity of TL capability that’s exiting, noting similar events a 12 months ago resulted in little to no change in spot rates.
![](https://www.freightwaves.com/wp-content/uploads/2024/03/25/spot-rates-1200x416.jpg)
![](https://www.freightwaves.com/wp-content/uploads/2024/03/25/tender-rejections-1200x419.jpg)
Majors said that is unlikely to be the “last cut” for TL earnings estimates this cycle as “hopium will undoubtedly linger into 2Q earnings in July.” He said the industry has been in a “relatively seasonal holding pattern” since mid-2023, which he expects will remain in place within the near term. Nonetheless, as earnings estimates reset lower following first-quarter reports, essentially removing further downside risk to numbers, he expects investors to “shift to a more bullish posture.”
Duetsche Bank (NYSE: DB) analyst Amit Mehrotra cut TL estimates by roughly 20% on average per week ago, saying he expects disappointing results from “most transactional/commoditized corporations” like TL and “because the retail complex stays skittish on re stocking and the truck market is stubbornly oversupplied.”
But he thinks the following move in inventory levels could possibly be positive.
“To make certain, retailers still appear highly hesitant on restocking, however the trajectory of sales within the context of the destock that’s occurred must be positive for inventory balances and in turn freight flows.”
Each analysts said they favor less-than-truckload carriers and the railroads as a consequence of “their pricing power and oligopolistic industry structures,” stressed Majors.
Mehrotra raised first-quarter estimates on among the railroads he follows but trimmed estimates on all LTL carriers aside from Saia (NASDAQ: SAIA), which he kept at $3.50 following a positive intraquarter update.
Majors barely raised his LTL estimates for the primary quarter on Friday, with XPO (NYSE: XPO) getting the most important increase at 4%. XPO issued a positive update on the quarter earlier this month. Majors’ estimate for Saia can be $3.50.
“We proceed to see outsized earnings risk from asset-based carriers and brokers exposed to the annual contractual pricing cycle relative to LTL and rails,” Majors said.
J.B. Hunt kicks off transportation’s first-quarter earnings season in earnest on Apr. 16.
More FreightWaves articles by Todd Maiden
- Carriers installing solar panels to scale back costs, extend battery life
- Landstar adds 2 recent sales roles to the C-suite
- Yellow asks court to toss claims it failed to provide layoff notifications
The post Truckload carriers’ forecasts cut heading into Q1 prints appeared first on FreightWaves.