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Trucking industry's near-term fundamentals are 'as bad as we've ever witnessed' — Stifel Nicolaus analysts


Although trucking stocks have had a good run lately, Stifel Nicolaus Co. Inc. analysts David Ross and John Larkin suggested in a recent research note that investors might want to consider cashing in any profits, noting that “near-term fundamentals are about as bad as we have ever witnessed.”

The pair recently spent time with four major companies in the transportation and logistics sector and came away with several key thoughts: volumes remain “well below already depressed 2008 levels,” despite a bit of seasonal strength; pricing is worse than most in the industry realize; “marginal capacity” is being helped by lenders who are too lenient and price-driven shippers; and rising fuel prices may put a crimp in second-quarter earnings.  

“It may well be possible to purchase trucking stocks at more attractive entry points during July's earnings season, when the factors we list above become more widely appreciated,” Larkin and Ross said.

With regard to specific companies, the analysts said Heartland Express is one of the few that hasn’t gotten into the intermodal, dedicated, brokerage, flat-bed or refrigerated segments. The truckload carrier pumps more than 80 percent of its fuel through its own terminals, saving between 5 cents and 12 cents per gallon, and potentially adding between half of a percentage point and one percentage point to its operating margin, they said.

The analysts met with Saia Inc.’s executives and noted that the less-than-truckload environment remains difficult for both tonnage and pricing thanks to continued overcapacity. At Saia, tonnage appears to have stabilized thanks in part to marketshare gains, and the company’s recent tonnage declines have been due more to existing customers shipping less than customers leaving, Larkin and Ross said. Saia is working on several cost-cutting initiatives no matter the condition of the freight environment, they said. Those initiatives include having drivers refuel at Saia terminals as often as possible and improving its linehaul network.

Less-than-truckload carrier YRC Worldwide Inc. continues to struggle, and the analysts noted that “much has to go right for this company to survive beyond the next quarter or two, in our view.” YRC’s fate might come down to running out of needed cash to operate, they said.

“We believe YRCW’s fate lies in the hands of managers of the Teamster pension funds, YRCW’s bank group, YRCW’s shippers/customers and the potential buyers of the company’s real estate holdings,” Ross and Larkin said.

By Desiree J. Hanford. A Chicago-based free-lance writer, Hanford covered the equities market, including transportation, for Dow Jones & Co. for 10 years.

Contact Progressive Railroading editorial staff.

More News from 6/4/2009