Trucking analysts are trimming expectations for the back half of the year ahead of the third-quarter earnings season, which begins next week.
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Morgan Stanley (NYSE: MS) transportation and logistics analyst Ravi Shanker cut earnings-per-share estimates by low-single- to high-teen percentages for most of the truckload and less-than-truckload carriers he covers.
“The year that promised so much has instead been a series of stop-start months as tariff uncertainty has taken its toll,” Shanker told clients in a Monday report. “Shipper uncertainty on the cycle remains high and visibility remains low, which makes predictions (or even looking backwards) difficult.”
Trade noise caused some shippers to pull forward inventory ahead of new tariff implementation dates. That lead to seasonally strong freight shipments in July, which gave way to subseasonal demand in August and an inline September, Shanker said.
He noted some TL carriers were optimistic about peak season prospects at investor conferences last month while LTL carriers sounded more cautious. Third-quarter reports and commentary from management teams will provide a scorecard on trucking’s peak season.
Shanker’s third-quarter earnings forecasts for the TLs were reduced by 10% on average, ranging from no change for Schneider National (NYSE: SNDR) to an 18% EPS cut for Knight-Swift Transportation (NYSE: KNX). Reductions were also made to fourth-quarter numbers.
However, his forecast for Knight-Swift sits 8% above the current consensus estimate. He said the company might see its best peak in the last three to four years “if late project business materializes as promised.”
Demand remains tepid across all modes with trucking more than three years into a freight recession. Manufacturing data again disappointed in September, with the Purchasing Managers’ Index (PMI) registering a 49.1 reading (50 is neutral), keeping it in negative territory for 33 of the past 35 months. The PMI new orders subindex – a signal for future activity – slid back into contraction at 48.9.
Weakness across the industrial complex was seen in intraquarter updates provided by LTL carriers.
Tonnage across the industry remained negative for most carriers during the first two months of the third quarter. ArcBest (NASDAQ: ARCB) cut its third-quarter margin outlook for its asset-based unit by approximately 100 basis points because of soft demand and cost inflation.
Shanker reduced his third-quarter ArcBest number by 17%, which is 6% below the consensus forecast. Revisions for other LTL carriers were less than 5% and are largely in line with consensus expectations.
“Mid-quarter updates were squishy across the board as LTLs continue to point to cyclical/Industrial malaise, though we suspect this could be a symptom of more idiosyncratic pressures with potential share loss to TLs, brokers and privates,” Shanker said.
He believes investors will be more interested in LTL pricing commentary and fourth-quarter margin outlooks. He flagged XPO (NYSE: XPO) as an outlier among the group given its idiosyncratic network optimization and pricing initiatives.
Bascome Majors, Susquehanna Financial Group’s transportation analyst, trimmed back-half TL numbers last month, citing softness in volumes, spot rates and tender rejections.
The third-quarter earnings season begins on Oct. 15 when J.B. Hunt Transport Services (NASDAQ: JBHT) reports after the market closes.
