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.
Forward Air (FWRD) beat analysts’ expectations by 5 cents a share, reporting a 12.1% rise in revenue to $267.52 million, up from $238.64 million in the second quarter last year. EPS was 64 cents against expectations of 58 cents. Income from operations was $29.8 million, compared to loss from operations of $14.3 million in the prior year quarter, which includes a one-time non-cash charge of $42.4 million primarily resulting from intangible asset impairments related to the Company’s TQI acquisition. Net income during the period was $19.6 million compared to a net loss of $10.1 million in the second quarter of 2016.
“During the second quarter, we executed on our growth strategies and increased revenue in every business unit. Our expedited LTL and truckload premium services groups drove strong volume growth but faced a challenging driver recruitment environment as the truckload market tightened towards the end of the quarter,” Bruce A. Campbell, chairman, president and CEO said. “Our Intermodal group closed the Atlantic acquisition and is on track with its integration. Pool distribution had another great quarter driven by new business wins and solid cost controls."
Landstar System, Inc. (NASDAQ:LSTR) reported diluted earnings per share of 89 cents on record second quarter revenue of $870 million and diluted earnings per share of 76 cents on revenue of $775 million in the 2016 second quarter. Gross profit was also a second quarter record, rising to $132.6 million in 2017 compared to $121 million in 2016. Operating margin was 46% in the second quarter.
“As expected, the pricing environment for our truckload services continued to show slow improvement in the 2017 second quarter, as industry-wide truck capacity is firming in certain regions, especially with respect to flatbed loads,” Jim Gattoni, president and CEO, said. “As a result, revenue per load on loads hauled via truck was 3 percent higher in the 2017 second quarter compared to the 2016 second quarter. The percentage change in year-over-year revenue per load on loads hauled via truck was consistent each month during the quarter. 2017 second quarter operating margin was 46.0 percent, in line with our historical second quarter operating margin.”
Patriot Transportation Holdings
The tank carrier reported third quarter net income of $456,000, or $.14 per share (inclusive of $139,000, or $.04 per share, due to a reduced tax expense in accordance with newly adopted accounting guidance on stock option exercises), compared to net income of $1.3 million, or $.42 per share, in the same quarter last year.
Revenue miles declined by 1,685,000, or 15%, to 9,524,000 versus the same quarter last year, the company said. Total revenues for the quarter was $28.1 million, down $3.2 million the same quarter last year. Operating profit was down $1.7 million to $534,000 (negatively impacted by the one-time $264,000 vacation accrual) compared to $2.2 million in the same quarter last year. Operating ratio was 98.1 this quarter versus 92.7 in the same quarter last year.
The company acknowledged a tough business climate for it so far. “The full impacts of the lost business from some large customer bids were substantially realized this quarter and in the first nine months of this fiscal year,” it said in its earnings release. “Additionally, following a recent merger, another large customer took significant steps to move some of its carrier requirements into the merged entity’s private fleet resulting in lost business for us in certain markets. It typically takes some time to fully replace business losses of this nature. We have added several significant pieces of business throughout the fiscal year but not nearly enough to offset the losses.”