Truckload carriers’ forecasts cut heading into Q1 prints

Spot rates jumped in January as winter storms sidelined some fleets for days. The rate bump from diminished available capacity was short-lived, however, with spot rates quickly falling back to where they ended 2023. The temporary rate reprieve only impacted a small portion of large carriers’ customer books as most 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 should consumer buying trends suddenly indicate the need for more merchandise, trucks are readily available to quickly accommodate.

However, 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 reaction could be indicative of the amount of TL capacity that is exiting, noting similar events a year ago resulted in little to no change in spot rates.

Majors said this 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 in the near term. However, 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 a week ago, saying he expects disappointing results from “most transactional/commoditized companies” like TL and “as the retail complex remains skittish on restocking and the truck market is stubbornly oversupplied.”

But he thinks the next move in inventory levels could be positive.

“To be sure, retailers still appear highly hesitant on restocking, but the trajectory of sales in the context of the destock that’s occurred should be positive for inventory balances and in turn freight flows.”

Both analysts said they favor less-than-truckload carriers and the railroads due to “their pricing power and oligopolistic industry structures,” stressed Majors.

Mehrotra raised first-quarter estimates on some of the railroads he follows but trimmed estimates on all LTL carriers except for Saia (NASDAQ: SAIA), which he kept at $3.50 following a favorable intraquarter update.

Majors slightly raised his LTL estimates for the first quarter on Friday, with XPO (NYSE: XPO) getting the largest increase at 4%. XPO issued a positive update on the quarter earlier this month. Majors’ estimate for Saia is also $3.50.

“We continue 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.

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