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Forward Air to hit 2023 EPS target a year early

New bogey may be too low; ‘There’s upside to what we put out there’

Forward Air sees continued earnings improvement (Photo: Jim Allen/FreightWaves)

Management from Forward Air said Thursday that March was the best month in the company’s history, with its less-than-truckload segment experiencing three of the highest tonnage weeks on record. The comments came on its first-quarter call, which highlighted the progress the asset-light trucking company has made transitioning its freight mix away from low-paying, light shipments to heavier loads. The efforts were undertaken to improve density and yields.

Forward reported record revenue, operating income and earnings per share during the first quarter and announced that it expects to surpass those top- and bottom-line results during the second quarter. Future EPS targets were also pulled forward as integral pieces of business — trade shows, conferences and concerts — are coming back online.

First-quarter EPS of $1.57 was well ahead of management’s original guidance of $1.15 to $1.19. Operating income and EPS for the first quarter are not adjusted for any one-off items but are compared to prior-year results, which excluded costs associated with a cyberattack and activist shareholder activities.

Consolidated revenue of $467 million was 29% higher year-over-year and ahead of its forecast of 18% to 22% growth.

“In the first weeks of the second quarter, we have seen continued strength, and believe we will see similar strong performance in the second quarter,” Tom Schmitt, chairman, president and CEO, stated in a press release. “Momentum is expected to continue as more and more cruise lines, conferences and trade shows come back.”

Forward (NASDAQ: FWRD) issued second-quarter guidance calling for revenue to grow between 18% and 22% with EPS ranging from $1.59 to $1.63. The outlook implies revenue of $505 million, which was slightly ahead of the $498 million consensus estimate provided by Seeking Alpha at the time of the print. The expected EPS range brackets the consensus estimate of $1.62.


Management said it’s “optimistic” the company can achieve the low end of its previously issued 2023 financial target (EPS of $6.30 to $6.70) in 2022. It is also confident that the high end of the range can be achieved in 2023 without the benefit of “any major acquisitions.” The prior guide was dependent on deal flow and outsized terminal additions.

Schmitt also indicated there may be further upside to the improved guidance. “Everything we’re doing would indicate to me: momentum is still there, we like what we see, more importantly, we like what our teams do and there’s upside to what we put out there.”

He said the company does better in loosening markets as it can utilize its mostly dedicated independent contractors more versus being dependent on true third-party capacity. Everything from service and claims ratios to the cost profile improves when using regular drivers.

Freight shipments tied to in-person events only accounted for roughly $40 million of revenue in 2021. That number could increase to $140 million in 2022. Forward also expects to see continued success selling directly to small and midsize shippers. In the past, it has predominantly worked through forwarders and 3PLs, which it will continue to do, but blending in more direct business with SMBs is very profitable. Cutting out the middleman can double margins to roughly 30%.

“The profitability of the small-medium size business is tremendous. The profitability of the events business is tremendous,” Schmitt stated on the call.

Sales to SMBs only account for roughly $20 million in revenue currently but are expected to increase to $100 million within the next one to three years. The company’s larger focus is still on what it estimates to be a $10 billion premium LTL freight market, which is composed of high-valued, heavier goods in need of expedited and “precision execution.” Management believes SMBs represent 30% of this subset.

Q1 highlights

Forward’s expedited segment, which includes LTL, truckload and final mile, recorded year-over-year revenue growth of 24% to $377 million. The LTL offering led the way (+36%) with TL (+7%) and final mile (+6%) making more modest contributions.

The freight swap to heavier loads pushed shipments per day down 15% year-over-year in the quarter but daily tonnage climbed 9%. The difference was a 27% increase in weight per shipment.

Tonnage increased (year-over-year) by 5.5% in January, 16.5% in February and 5.5% in March. So far in April, tonnage is up by an amount similar to that logged in March. The February comp benefited from severe winter storms last year. Also, the company hadn’t begun transitioning from low-weight, nonpalletized freight until the back half of 2021, which was a tailwind to all of the monthly comps.

The expedited margin increased 460 basis points year-over-year to 12.7%. A 12% increase in yields, or revenue per hundredweight (excluding fuel), paved the way for the improved margin performance. Every expense bucket in the segment was lower year-over-year as a percentage of revenue except fuel, which was almost flat. The two largest expense lines were the biggest decliners. Purchased transportation expenses fell 90 bps, with salaries, wages and benefits declining 220 bps.

Management said the LTL margin was 19.5% in the quarter (80.5% operating ratio) and that it expects to see an OR in the 70s at some point this year.

Intermodal revenue increased 55% year-over-year to $90 million. Revenue per shipment was up 61% with the operating margin also improving 460 bps to 12.3%. Purchased transportation expenses (-770 bps) and compensation expenses (-420 bps) declined the most as a percentage of revenue.

Table: Forward’s key performance indicators

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.
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