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Forward Air sees further growth in 2023 as macro cools

CEO: ‘We are winning this year and we are winning next year’

Forward Air sees the potential for a sub-80% LTL operating ratio in 2023. (Photo: Jim Allen/FreightWaves)

Asset-light transportation provider Forward Air continues to beat and raise expectations. The company’s outlook for the fourth-quarter and 2023 calls for continued revenue growth and stable margins even as the freight economy cools.

Forward (NASDAQ: FWRD) reported third-quarter earnings per share of $1.93, 3 cents better than the consensus estimate and a penny above the high end of management’s $1.88 to $1.92 guidance range. The result was 79 cents higher year over year (y/y) on an adjusted basis. Consolidated revenue increased 22% y/y to $510 million, which was near the midpoint of management’s quarterly forecast.

“We are winning in a softer environment. We are winning this year and we are winning next year,” Chairman, President and CEO Tom Schmitt told analysts on a Thursday call.

Q4 and 2023 outlook

The company issued fourth-quarter guidance calling for revenue growth between 7% and 11% y/y, or $501 million at the midpoint of the range. The outlook was $4 million below the consensus estimate at the time of the print. However, EPS guidance of $1.98 to $2.02 was 15% better than analysts’ forecast of $1.74.

The Q4 outlook puts full-year 2022 EPS at $7.50 or higher. Management believes EPS will ramp again in 2023 as revenue (potentially tonnage and likely yields) increases further. The current consensus estimate for next year calls for EPS to fall to $6.95.

An increase of in-person events, share wins from core forwarding customers and Forward’s efforts to sell directly to shippers not using forwarders are the revenue catalysts. On the cost side, the company will be using less outside transportation capacity, and it expects to see margin synergies across modes as each better supports one another.


Schmitt said freight from events is back to roughly 75%, the level it was prior to the pandemic. He sees that mark moving to 90% in 2023 even as recession fears force consumers to further scrutinize spending.

“After two and a half years of everybody here living in a home-based economy, we want to be in an experience-based economy again,” Schmitt said. “As to when you curtail your spending, and you already bought two fridges and three microwaves, you probably will spend a dollar on that concert … and going on that trip.”

Q3 highlights and additional expectations

Revenue increased 16% y/y to $396 million in Forward’s expedited freight segment, which includes less-than-truckload, truckload and final mile. Shipments were up 8% y/y, but weight per shipment fell 6%, resulting in a tonnage increase of just 2% (tonnage per day was down 4% from Q2). Compared to 2021, tonnage was up 3% in July, 5% in August and down slightly in September. So far in October, tonnage is down 5% y/y.

Management is using a 5% y/y decline in tonnage as the basis for its expedited freight segment forecasts next year.

As volumes have moderated yields have remained firm. Revenue per hundredweight increased 7% y/y, excluding the impact of fuel surcharges during the period. The metric was down 4% from the second quarter.

“We are far from done with pricing actions,” Schmitt said. “You should expect the same pricing discipline — accelerating — that you would expect from any other first-class transportation company.”

Table: Forward’s key performance indicators

Higher yields and cost management drove the unit’s operating margin 410 basis points higher y/y to 14.2%. The biggest changes in costs as a percentage of revenue were purchased transportation (down 270 bps) and salaries, wages and benefits (down 120 bps). Miles executed with third-party capacity were down to just 5% compared to roughly 25% in the first quarter.

The LTL offering recorded a sub-80% operating ratio during September, a mark Schmitt said is possible to achieve in 2023. However, his forecast calls for lower fuel surcharge revenue, which would be a headwind.

Intermodal revenue increased 46% y/y to $114 million. Drayage loads fell 3% y/y, which was more than offset by a 62% y/y increase in revenue per shipment. The company has made a couple of acquisitions in the division over the last year, which aided the top-line result. The division’s operating margin increased 340 bps to 14.5%.

Management said the intermodal segment can see double-digit revenue growth next year given organic opportunities within the companies it recently acquired. Double-digit margins are expected to be a permanent fixture in the division even as accessorial fees from holding and storing freight fall off now that supply chain congestion has eased.

Shares of FWRD were up 0.8% at 12:14 p.m. EDT Thursday compared to the S&P 500, which was down 0.1%.

Prior to the report, the stock was up 5.1% since it reported second-quarter results on July 27. By comparison the MerQube FreightWaves Supply Chain Tech Index (SCTI) was down 9% over the same time. The SCTI measures share price performance of tech-enabled supply chain services providers like Forward Air.

Chart: (SONAR: MQFWSCTP.USA). The MerQube FreightWaves Supply Chain Tech Index (Price Returns) tracks the performance of large and liquid companies around the world identified by FreightWaves as best in class in delivering freight technology solutions. The Price Return index considers price movements (capital gains or losses) of the securities that make up the index. To learn more about FreightWaves SONAR, click here.

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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.