Attractive Investment Opportunities in the Trucking Industry
Awais is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to the American Trucking Association, the U.S. freight transportation breakup will change through 2023. Presently, the truck transportation represents 67% of the total freight transportation breakup. This figure is forecasted to increase to 69.6% in the year 2023. Truck transportation will fill the gap which will emerge from the reduced utilization of railcars, pipelines and water for freight transportation. Therefore, the trucking industry is poised for growth in the coming years.
Swift Transportation Company (NYSE: SWFT), JB Hunt Transport Services (NASDAQ: JBHT) and Con-way (NYSE: CNW) are three companies that are gearing up their operations to benefit from the increase in demand for the trucking industry.
Swift’s international diversification
Swift is a diverse transportation company. The company owns over 16,000 trucks, which primarily transport discount and retail merchandise across the United States. The company also operates 8700 intermodal containers from 35 terminals. The company has been showing robust performance in the last few years. The trailing twelve month revenue of $3.5 billion has been the company’s highest-ever. The company has been decreasing its net debt and leverage ratio since 2008. This change has helped the company lower its interest expense significantly.
The company is planning to leverage its growth by expanding its operations in Mexico and Canada. According to trade statistics, Canada is the number one trade partner, whereas Mexico is the number three trade partner with the USA. Swift will benefit from this strategy as the trade between the U.S. and Mexico is increasing. 54% of all trade between the U.S. and Mexico is done by Over the Road, or OTR, transportation mode. Swift’s subsidiary of Trans-Mex will further benefit the company as it has dedicated operations in Mexico. Currently, Swift only accounts for 0.3% of Canada border crossing loads market, but it plans to expand its operations there as well.
JB Hunt’s organic growth
JB Hunt provides transportation and delivery services in the United States, Canada and Mexico. The company has four segments including Intermodal, Dedicated Contract Services, Integrated Capacity Solutions and Full-Load Dry-Van. The company’s EBITDA figures have been increasing steadily after a drop in 2009. The trailing twelve month EBITDA figures for the company have been the highest the company has ever reported.
JB Hunt has a commanding position in the domestic intermodal market. JB Hunt accounts for 27% of domestic intermodal revenue by retailer. In financial terms, the intermodal segment represents 60% of the company’s total revenue. The company has added approximately 1300 containers to its intermodal segment in the first quarter. This is because the company is expecting this segment to grow by 13% in 2013 because of its efficient network and significant regional footprint.
The company’s Dedicated Contract Services segment reported a decrease in its operating income of 22% as compared to the first quarter last year. The decrease in operating income was because of the increased equipment and maintenance costs, increased bad debt expense and lower gains on equipment sales. I expect this segment to perform better in the second quarter.
Con-way provides services related to transportation, logistics and supply chain management to multiple industrial and retail customers in the United States and abroad. Con-way conducts its business through three companies known as Con-way Freight, Con-way Truckload and Menlo Worldwide Logistics. The company’s revenues have been stagnant for the year 2012 and the trailing twelve month period at around $5.5 billion. The EBITDA of the company was rising until the year 2012, but the figures have dropped in the last twelve months.
The company’s Menlo Logistics segment is planning to grow by expanding its footprint internationally, investing in higher margin services such as brokerage, and by extracting efficiencies through lean principles of operations. Con-way is also planning to increase the performance of its Truckload segment and improve the margins of the Freight segment. The company plans to achieve this by focusing on the premium segment of the truckload industry.
The trucking industry will continue to grow in the coming years. Market participants, therefore, are expecting some solid investment opportunities to arise from this change. Swift and JB Hunt are two companies which have solid performance in the past and attractive growth prospects. Con-way is revamping its business and I expect the company to show better performance in the coming years.
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Awais Iqbal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!