After a start to earnings season that saw both J.B. Hunt and C.H. Robinson miss expectations, transport stocks received a boost as both Werner Enterprises and Swift Transportation reported better-than-expected reports.
J.B. Hunt reported second-quarter earnings of 88 cents per share against estimates of 91 cents, on revenue of $1.73 billion. C.H. Robinson reported a 22% decline in year-over-year EPS at 78 cents vs. estimates of 90 cents. That was down from $1.00 EPS in the second quarter of 2016.
Swift and Werner, though, have restored some optimism to the sector with their earnings, announced Monday night after the market closed.
Swift, in its final expected quarterly release as a lone public entity, beat Wall Street estimates by 5 cents, reporting adjusted second quarter EOS of 25 cents versus estimates of 20 cents.
According to a Stifel analyst note, operating margins contracted across Swift’s main businesses – truckload, dedicated and refrigerated. The intermodal unit showed slight margin expansion, but overall, depressed contract rates hurt the company.
Swift report revenue of $1 billion for the quarter.
The big news for the company is the upcoming merger with Knight. The Stifel note anticipates that merger, expected to be complete in the third quarter, will drive own Swift’s operating ratio.
“What will matter then, is the ability of the combined management team to bring Swift’s operating ratio down into the low- to mid-80s range that has always been the Knight Transportation standard,” the note said. “We certainly look forward to hearing the Knight team’s view of what is possible at Swift. But, we believe that Kevin Knight and his management team are still formulating their strategies and tactics for improving Swift’s profitability. However, it appears as if the Street is already pricing in an effective 85% operating ratio for the Swift component of the combination.”
Swift (SWFT) stock was trading at 26.50 in mid-day trading, up $1.11.
Werner Enterprises also beat Street expectations, reported a gross revenue increase of 4.2% year-over-year to $519.5 million for the second quarter. Trucking revenues were up 3.6% year-over-year, led by a 4.1% increase in revenue per truck per week thanks in part to a lowered empty mile percentage.
Second-quarter EPS was 32 cents versus estimates of 27 cents. The lower empty miles percentage, more miles per truck and higher pricing for spot market shipments contributed to the performance, according to a Stifel note.
The company’s logistics section, though, stumbled a bit, with revenues down 3% year-over-year and the average number of tractors in service 31.4% to 48 in the second quarter.
“Along with these improvements, a tightening of the supply and demand environment could help drive consistent, double-digit EPS growth, which could raise the stock price,” Stifel said.
Werner ended the quarter with $75 million in debt, down $55 million from the first quarter. Stifel raised its 12-month target price for Werner shares from $26 to $29 and increased its 2017, 2018, and 2019 EPS estimates from $1.10, $1.30, and $1.50 to $1.25, $1.45, and $1.60, respectively.
Werner (WERN) stock was up $1.67 in mid-day trading to 30.88.
In its release, Werner noted that volumes in truckload have been seasonally better than normal and stronger than the second quarter of 2016.
“Freight volume metrics have improved, as evidenced by a lower empty mile percentage, rising average miles per truck and higher pricing for transactional spot market shipments,” Werner said. “Assuming this freight volume trend continues, we expect contractual rates to begin to improve over the next few quarters, particularly noting the expected tightening of supply when the electronic hours of service mandate for the trucking industry becomes effective in December of this year.”
The company added that it expects net capital expenditures to be in the range of $175 million to $225 million, which is substantially lower than the $430 million of net capital expenditures in 2016.