Third-quarter earnings expected to rise for J.B. Hunt, P.A.M., ArcBest

by Jeff Della Rosa ([email protected]) 509 views 

The hurricanes might have hurt the modest third-quarter growth in the economy, but efforts to clean up and rebuild should help trucking and logistics operators by generating “a lot of incremental freight,” transportation analysts said.

In a third-quarter earnings preview, “In Like a Lamb, Out Like a Lion,” Stifel transportation analysts reviewd trends in the transportation industry and the overall economy. Freight volumes for truckload companies and spot rates continued to be strong while contract rates started to rise for the first time in more than a year. Small trucking companies increased their capacity because they “couldn’t resist high quality, low priced used tractors,” according to the preview. Overall, capacity in the trucking industry declined slightly.

For less-than-truckload (LTL) carriers like Fort Smith-based ABF Freight, freight volumes rose “significantly” in the third quarter, from the same period in 2016. The rise can be attributed to freight overflow from truckload, strength in the industrial sector, and continued growth in the e-commerce sector. Many carriers struggled temporarily through the storms.

The brokerage sector continues to face talk of the “Uberization of brokerage,” and it’s a negative point of discussion against established brokers. However, Stifel analysts see it as unwarranted because Uber Freight and Amazon are greater threats to brokers than startups backed by venture capitalists. Amazon continues to expand its transportation capabilities and launched into the brick-and-mortar grocery business with its purchase of Whole Foods, and this has made other shippers, carriers and brokers nervous.

For intermodal, freight volumes were better than expected. Through Sept. 23, West Coast container volumes have remained positive, compared to the same period in 2016.

Fuel prices remained flat until the hurricanes hit the Gulf Coast, driving up prices as much as 15% in September. This could impact margins slightly in the third quarter because of the fuel surcharge lag effect. At the end of the quarter, on-highway retail diesel prices rose 9.9% to $2.79 per gallon, from the same period in 2016. In the quarter, several sectors in the transportation industry outperformed the S&P 500 by the following percentage: Truckload, 32.4%; LTL, 22.4%; Intermodal, 12.8%; and Logistics (Brokerage), 9%.

The shares of Fort Smith-based ArcBest Corp., parent company of ABF Freight, and Van Buren-based carrier USA Truck were top performers, outperforming the S&P 500 by 58.4% and 58.3%, respectively. Celadon Group outperformed the S&P 500 by 110.3%. Stifel recently changed its rating to buy, from hold, for USA Truck and Lowell-based carrier J.B. Hunt Transport Services, with a 12-month target stock price of $15 and $125, respectively, according to transportation analysts John Larkin and David Ross.

The following is when carriers are expected to report third-quarter earnings: ArcBest, Nov. 3; J.B. Hunt, Oct. 13; Tontitown-based P.A.M. Transportation Services, Oct. 25; and USA Truck, Nov. 2.

ArcBest, J.B. Hunt, and P.A.M. are expected to report earnings per share of 60 cents, 98 cents and 26 cents, from 48 cents, 97 cents and 53 cents, respectively, in the same period last year, based on a consensus of analysts. USA Truck is projected to report a loss of 3 cents per share, from a 9 cents per share loss in the 2016 quarter.

Revenue for ArcBest, J.B. Hunt and USA Truck is expected to rise 5.1% to $750.51 million, 7.9% to $1.82 billion, and 1.7% to $107.2 million, respectively, based on a consensus of analysts. Revenue for P.A.M. is projected to fall 3.6% to 92.5 million. Stifel gave hold ratings for ArcBest and P.A.M. stocks, but increased P.A.M.’s 12-month target price 9.1% to $24, from $22.

• P.A.M. Transportation Services
The company is an asset-based, dry-van carrier that is focused on North-South (Detroit to Mexico) truckload freight for large automotive clients. Matt Moroun owns nearly 61.5% of company shares, and nearly 45% of its revenue can be attributed to clients who are largely involved in the automotive industry.

“Given the strong growth in the automotive segment and Washington D.C.’s commitment to support the American automotive industry, this consolidated revenue exposure feels OK, after adjusting for the ebbs and flows of the general economy.”

The company’s large shippers have likely been putting pressure on the company to reduce pricing, and as carriers have reduced capacity in other industries, it’s given P.A.M. the opportunity to “diversify out of the automotive segment, take on dedicated contracts and is one of the few carriers to be increasing both fleet count and utilization profitably,” according to Stifel.

“We think this increased operating leverage will benefit the company through the cycle.”

P.A.M. shares (NASDAQ: PTSI) closed Tuesday at $28.06, up $3.50. The share price hit a new 52 week high of $28.63 in Tuesday’s trading. During the past 52 weeks the share price has ranged between $14.50 and $28.63.

• USA Truck
Like P.A.M., USA Truck is also an asset-based truckload carrier, and has a non-asset based logistics and brokerage segment. The company continues to push through a transitional period after struggling through the Great Recession. In January, the carrier promoted James Reed to CEO after serving as the chief financial officer for Interstate Distributor for nearly four years.

“We think James’ previous experience will serve him well in this role,” according to Stifel. “We expect operational improvement to be the focus of the asset based portion of the business for the time being. The company has respectable cash flow that we expect will be used for share buy backs and not (mergers and acquisitions).”

USA Truck shares (NASDAQ: USAK) closed Tuesday at $14.07, up 8 cents. During the past 52 weeks the share price has ranged between $5.73 and $14.89.

• ArcBest Corp.
For ArcBest, it is a union LTL carrier that includes 60% regional shipments and 40% long-haul shipments. Its logistics services posted nearly 29% of gross revenue in 2016, from 7% in 2009. Its existing union contract is set to expire March 31, 2018, and labor negotiations are expected to be underway.

“After underperforming on the pricing side, in our view, management is attempting to improve, as evidenced by the company’s CMC (cubic minimum charge) initiative, as well as reporting above-average yields alongside below-average volume growth,” according to Stifel. “The proof of success will ultimately lie in the company’s (operating ratio).”

ArcBest shares (NASDAQ: ARCB) closed Tuesday at $32.15, up 25 cents. During the past 52 weeks the share price has ranged between $16.95 and $34.25.

• J.B. Hunt Transport Services
For J.B. Hunt, it provides multi-modal logistics services, focused in the United States. It has the largest U.S. intermodal operation, a dedicated trucking segment, an asset-light brokerage segment and an irregular route truckload segment. In 2016, intermodal growth was impacted by a “persistent inventory glut, weak consumer demand” and a surplus of truckload capacity, according to Stifel.

“Earlier this quarter the company pre-announced margins to the negative, relative to street consensus. We believe stock price performance will be largely driven by the extent to which the company’s intermodal customers accept price increases and the extent to which dedicated contracts can be on-boarded without creating a significant near-term drag on earnings.”

As the company’s truckload and brokerage segments improve and grow, this should boost earnings over the next several years.

Hunt shares (NASDAQ: JBHT) closed Tuesday at $106.17, up 26 cents. During the past 52 weeks the share price has ranged between $76.20 and $111.98.