When Swift Transportation reported its earnings earlier this week, one of the big questions would be how they would be affected going forward as the acquisition of the company by Knight Transportation is completed and financials are combined.
A research note from Stifel suggested that once Knight reported its earnings, more would be learned about the combined company. Knight has now reported, and the combined outlook has not swayed the opinion of the stock going forward.
“We learned little regarding the pending, transformational combination with Swift Transportation other than that the deal should close during the late August/early September time frame,” the Stifel note on Knight’s earning stated. “So the question becomes, with Knight’s common shares and Swift’s shares effectively “joined at the hip”, are Knight’s shares attractively priced or not? We think not and reiterate our hold rating on the company’s common shares.”
Stifel is increasing its 2017, 2018 and 2019 EPS estimates for the combined company from $0.94, $1.07, and $1.25 to $1.10, $1.32, and $1.75, respectively, but it has decreased the share price target from $38 to $36.
As for Knight’s earnings, the company reported an 18% drop in second quarter 2017 EPS year-over-year to 25 cents. That was in line with estimates, though. The carrier reported total revenue decreased 1.1% year-over-year to $273 million, while revenue, excluding trucking fuel surcharge, decreased 2.7%, to $247 million.
“The freight environment began to show signs of improvement as we experienced more non-contract opportunities during the second quarter of 2017 as compared to the same quarter last year,” explained Dave Jackson president and CEO. “Our revenue per loaded mile increased slightly year over year, which marks the first year over year improvement since the third quarter of 2015. The 2017 bid season has been competitive, similar to 2016, however, we expect the recent capacity tightness and non-contract pricing strength to lead to an improved rate environment. This quarter our tractor utilization was negatively impacted by a 3.4% decline in average length of haul and a difficult experienced driver recruiting market. We expect these challenges to continue into the third quarter, however, our leadership remains focused on improving the productivity of our assets, expanding our brokerage business, and enhancing our cost control measures.
UPS posted second-quarter net income of $1.4 billion or $1.58 per share, up nearly 8 percent from $1.3 billion or $1.43 per share a year earlier on the continuing strength of e-commerce shipments. Analysts had expected earnings per share of $1.47.
The company said its domestic package service rose to $9.7 billion and revenue per package climbed 3% versus 2016’s second quarter. UPS raised prices this year.
“As far as peak of this year, we have additional capacity that’s opening in several different spots throughout the country,” CEO David Abney told Reuters on Thursday. “We have healthy volume growth, so we are planning for that.”
International segment grew 2.8% but its operating profit fell almost 5% due to export growth in Asia and Europe, UPS said.
Covenant Transport (CVTI) reported a 60% year-over-year drop in earnings, but it met Wall Street estimates of 8 cents per share. The Chattanooga, TN-based carrier earned $1.5 million on revenues of $164.3 million in the second quarter vs. $3.6 million on revenues of $160.2 million last year.
“Freight demand built throughout the quarter and continues to be favorable in July on a seasonally adjusted basis,” CEO David Parker said. “April was the slowest month overall, in part due to reduction of a portion of freight from customers as we made decisions to protect our yield model in our expedited service offering. In addition, we assisted customers in our dedicated service offering to re-engineer improved efficiency of their freight network that resulted in a reduction of the number of high-utilization dedicated trucks that they required from us.”
“Each month was stronger, from a demand and revenue productivity perspective, when compared to the previous month,” said an earnings note from Stifel. “The company expects revenue productivity per truck to turn positive y/y in the third quarter, as July has been a strong month, from a seasonally adjusted point of view. And the e-commerce surge should reappear in the fourth quarter, only bigger and stronger than in the fourth quarter 2016 as e-commerce continues to capture share of the retail market.”
Covenant’s debt to total capitalization declined slightly from 46.8% at 2016 year’s end to 44.3% at mid-year 2017. The company ended the quarter with nearly $16 million of cash and almost $56 million of undrawn availability under its revolving credit line.