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LTL tonnage declines accelerate in November

Saia’s Q4 update prompts analysts to cut numbers

Saia's fourth-quarter update reveals a notable step down in less-than-truckload freight demand. (Photo: Jim Allen/FreightWaves)

As forewarned two weeks ago at an investor conference, declines in less-than-truckload tonnage accelerated during November.

Wednesday after the market closed, Saia (NASDAQ: SAIA) reported tonnage was down 7.7% year over year (y/y) for the month, following a 3% y/y decline in October. The carrier’s daily tonnage first inflected negatively in September (down 4.1% y/y) after modest gains were recorded in July (up 2.9%) and August (up 0.4%).

The update came in below analysts’ expectations, resulting in estimate cuts and a rating change.

Bank of America (NYSE: BAC) analyst Ken Hoexter lowered his rating on the stock to “underperform” from “neutral” following the announcement.

“Saia’s midquarter update showed LTL tonnage and shipment trends deteriorating faster in November and larger than our BofA monthly targets,” Hoexter said.

The 5.4% average decline for the months of October and November was below his expectation for a 3.4% decline in the fourth quarter.

Saia’s November tonnage result was the combination of an 8.6% y/y decline in shipments, which was partially offset by a 1% increase in weight per shipment. During October, the carrier’s shipments were only down 4.4% y/y.  

Hoexter lowered his earnings-per-share (EPS) estimates by 5% to $2.86 for the fourth quarter and trimmed the 2023 number by 2% to $13.25. His fourth-quarter forecast for daily tonnage now calls for a 6.9% decline.

Table: Company reports

Other LTL carriers like ArcBest (NASDAQ: ARCB), Forward Air (NASDAQ: FWRD), Old Dominion (NASDAQ: ODFL) and Yellow (NYSE: YELL) will provide intraquarter updates in the coming days, which Hoexter predicts will also come in “below target.” He believes recent furloughs and other labor expense reduction efforts may not be enough to stem the decline in volumes.

“In line with accelerating demand declines and an elusive peak season, some LTL carriers have announced furloughs,” Hoexter said. “Quick cost moves can work to keep pricing in focus, but as volumes hit upper single-digits to double-digit declines the group will be tested.”

Saia doesn’t provide revenue or yield metrics in its intraquarter updates. Hoexter expects revenue per hundredweight growth to moderate to up 5.6% y/y in the fourth quarter, down from the 7.8% growth rate logged in the third quarter.

Longtime Saia bull Amit Mehrotra cut his EPS forecasts for the carrier as well.

“The [November] decline is a decent deceleration from recent trends and we think about 200-300 basis points worse than baseline expectations,” Mehrotra, a Deutsche Bank (NYSE: DB) analyst, told clients in a Thursday email.

Mehrotra dialed back his fourth-quarter number by 8% to $2.63. The new estimate represents a 12% ($85 million) revenue decline from the third quarter. He acknowledged it was a “big number to offset with cost reduction” but was a bit more optimistic on the ability of carriers to cull expenses.

“The good news is we believe Saia (and other LTL companies) have an ability to react quickly in this regard, with terminal managers reducing overtime, reducing dock hours, which leads to greater attrition, cutting routes and taking out purchase transportation, and ultimately furloughs, but it will take aggressive action to counter the sequential revenue decline we expect in 4Q,” Mehrotra said.

He also lowered his 2023 forecast by 2% to $12.10. The current consensus EPS estimate for Saia next year is $12.88.

Mehrotra said an offset to the volume declines is pricing, which “continues to be strong despite weaker volume trends.” He pointed to recent general rate increase (GRI) announcements of 5.9% at TForce Freight (NYSE: TFII) and between 5.9% and 7.9% at FedEx Freight (NYSE: FDX) as support for the industry’s ability to capture price.

Yellow also implemented a 5.9% GRI on Oct. 3.

“This is encouraging in the context of weaker volumes, in our view, as the main fundamental risk to LTL shares is the outlook for pricing (and we see no weakness in this regard),” Mehrotra said. “We think Saia is managing this process proactively, and together with still strong industry pricing, should allow shares to ultimately reflect the company’s potential.”

LTL stocks sold off in early trading Thursday with shares of Saia falling the most, down 5.2%. In comparison, the S&P 500 was down 0.5%. Saia’s stock was up 22% in November.

More FreightWaves articles by Todd Maiden

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.