Analysts optimistic about USA Truck, note concerns with ArcBest

USA Truck has an “attractive” future, while ArcBest is doing well but could have cost structure problems, according to Brad Delco, equity analyst for Little Rock-based Stephens Inc., and Associate Analyst Scott Schoenhaus.

The analysts issued investor notes on Van Buren-based USA Truck and Fort Smith-based ArcBest following the companies’ recent second quarter earnings reports.

The second quarter of 2018 marked the fourth consecutive quarter of being in the black for USA Truck, the company reported July 26. Second quarter income was $2.544 million, much better than the $2.846 million loss in the same quarter of 2017. Earnings per share of 31 cents beat the consensus estimate of 28 cents. Revenue during the quarter was $135.381 million, up 26.1% compared to the $107.358 million in the same quarter of 2017.

For the first half of 2018, USA Truck posted net income of $3.574 million, a wide swing from the $7.736 million loss carried in the first half of 2017. Revenue in the first half of the year was $260.394 million, up over the $209.028 million in the same period of 2017.

Better pricing in a transportation sector witnessing more freight demand than shipping supply helped push ArcBest to record quarterly revenue of $793.35 million, the company reported July 31. The revenue was better than the consensus estimate of $786.33 million and up 10.1% compared with the same quarter in 2017. ArcBest is the parent company of ABF Freight, one of the largest less-than-truckload carriers in the country.

However, second quarter net income was just $1.233 million, well below the $15.777 million in the second quarter of 2017 thanks to a $37.9 million charge for a multiemployer pension fund. Without the one-time charge, quarterly net income would have been $29.787 million, or $1.12 per share. That reality would have beat the consensus earnings per share estimate of $1.01.

Revenue in the first half of 2018 for the company was $1.493 billion, ahead of the $1.371 billion in the first half of 2017. Net income in the first half of the year was $11.187 million, up 33.65% compared with the $8.37 million in the same period of 2017. Without the pension fund charge, net income for the first half of the year would have totaled $37.55 million.

USA TRUCK NOTES
Delco and Schoenhaus have an “Overweight” rating – meaning it is valued well based on its earnings potential – to USA Truck shares (NASDAQ: USAK) and placed a $30 target on the shares. The analysts said management is making progress on the company’s turnaround plan.

“Additionally, we saw notable improvement in the company’s Trucking operations helping to deliver a more balanced (earnings) beat along with contributions from USAT Logistics,” the analysts noted in their investor report. “We continue to believe that the setup for USAK is attractive as we move throughout the year and continue to believe in the current management team’s ability to drive further improvements across the business.”

On the negative side is equipment utilization, with the unseated tractor count at 7.3% in the second quarter – a clear sign of driver shortages in the transportation sector. The analysts are optimistic that “investing in driver managers and increasing driver pay later this quarter” will help USA Truck recruit and retain more drivers.

USA Truck shares (NASDAQ: USAK) closed Monday at $22.05, up 28 cents. During the past 52 weeks the share price has ranged between $29.15 and $7.98.

ARCBEST NOTES
The analysts have an “Equalweight” rating – meaning it is valued similar to other industry stocks based on its earnings potential – for ArcBest shares, but raised the target price from $36 per share to $39. A primary reason for raising the target price is “positive momentum” in yields and pricing that could boost near-term earnings.

However, while they said ABF Freight “demonstrated strong performance” with an operating ratio of 92.6%, the analysts also noted concerns about ABF Freight’s cost structure and the the “disappointing margin performance” in the ArcBest Logistics division. Delco has previously written that higher wages and benefits in the recently approved labor contract with the International Brotherhood of Teamsters places ArcBest at a cost disadvantage with peer companies.

“Longer-term, we still have concerns that ARCB’s LTL cost structure is out of line vs. competitors and its Asset-Light (logistics and Fleetnet) segment performance has lagged peers. We would look to get more constructive on the stock if we saw consistent execution across both business segments,” the analysts noted.

ArcBest shares (NASDAQ: ARCB) closed Monday at $47.45, up $1.05. During the past 52 weeks the share price has ranged between $25.02 and $50.45.