The Earnings Story for the Truckers

Zain is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The trucking industry moves in early cycles, i.e. the activity in the industry rises well before the economy witnesses growth. Similarly, the recessionary times see a decline in this industry’s revenue well before the economy experiences a recession. What is currently going on in this industry will be much clearer after this earnings season.

I think the challenging environment in 4Q (storms, and tepid demand growth) will likely lead to an underwhelming earnings season for the trucking group. Old Dominion Freight Line (NASDAQ: ODFL) is my favorite stock in this space. I see the most uncertainty in 4Q EPS from Con-way (NYSE: CNW) and Ryder Systems (NYSE: R)

Old Dominion Freight Lines

The Street expects the company to post an EPS of $0.50 and quarterly revenue of $535 million, which will be 10.3% higher, YoY. The company has not missed quarterly EPS estimates since the 2009 recession (12 consecutive beats) and despite the challenging environment, the company provided guidance late in the quarter that was mostly in line with its previous expectations. Both the volume and pricing trends will remain above the industry average which should drive operating margins of 13.9%, a 90bps improvement on a YoY basis. The earnings release is on Feb. 7.

Con-way

Con-way can post solid 4Q results after a soft 3Q, but given the recent headwinds during the quarter, there could be downside risk to the Street’s estimate of $0.28. The company’s inability in 3Q to improve upon the solid YoY margin gains in 1H12 (+100 bp), and the challenging environment in 4Q has made investors cautious prior to the earnings release on Feb. 6, after the market close. I assume minimal YoY operating margin improvement for the last quarter. Recent trends suggest the risks are more to the downside for Con-way on this earnings release.

Ryder Systems

Ryder might disappoint investors with its 4Q earnings release, but I think that the company could provide positive commentary on 1H13 and the full year. As the economy rebounds in the coming quarters, Ryder’s early-cycle rental business will likely benefit. With both operating margins and valuations at depressed levels, I continue to like Ryder as a name to own in 2013. The commentary from the Street suggests that the truck rental market became tight during the quarter, and therefore I see risks to the 4Q EPS weighted more to the upside this quarter.

Landstar

The $0.67 EPS estimate for Landstar (NASDAQ: LSTR) is at the high end of the company’s $0.63-$0.68 guidance range. The revenue estimate is $715 million. I think the company can post operating margins (operating income as a proportion of gross profit) of 46.4% vs. consensus of just 44.7%. The trucking company is expected to announce its earnings on Jan. 31.  

JB Hunt Transportation

A rise in the intermodal volumes remains the key to growth for J.B. Hunt Transportation (NASDAQ: JBHT). The company can grow 4Q intermodal volumes by 13%, YoY. The revenue estimate by the Street is $1.33 billion. However, the company might miss this estimate on slightly lower Dedicated and Truck revenue. The consensus estimate for EPS is $0.70. This assumes a re-acceleration in operating margin expansion from +14bp YoY in Q3 to +50bp in Q4. The earnings beat is more likely to come from the top line rather than from better than expected cost performance.

Foolish bottom-line

The trucking industry is up for some restructuring that will help the companies to make gain along the way. However, much of that has been priced in the stocks and they are expected to move only on a revenue miss/beat.

 


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