If the trucking sector in 2007 performs as some in the industry expect, then it may look just as plain as a median stripe between two lanes of blacktop.
"Executives today are planning for a flat economy in '07 but are better positioned to take advantage of what freight there is out there than they were during the last big slowdown in 2000 and 2001," said Lane Kidd, president of the Arkansas Trucking Association. "In many case, they had too much equipment (before)."
The slowdown in freight demand that began in late 2006 likely will continue in the near term but could pick up in the bottom half of 2007, Donald Broughton, senior transportation analyst with A.G. Edwards in St. Louis, said in December.
Some individual companies though are better positioned than others to profit through the year.
J.B. Hunt Transport Services Inc. is expected to see its 2007 earnings grow by 6.12 percent compared to 2006 and by 21.87 over 2005, according to estimates published by Stephens Inc. on Dec.15.
Hunt's diversified business model gives it the best chance for gains in 2007.
Stephens analyst, Thom Albrecht said Hunt's three-pronged business model helps the company mitigate the seasonal and cyclical aspects of regular truckload carriers. (Stephens Inc. conducts investment baking business with J.B. Hunt Transport and expects to receive compensation for those services in the next three months.)
J.B. Hunt Transport continues to see growth in two of the company's three segments.
Rail operations have helped Hunt catch its gravy train. Hunt's intermodal division provides stackable containers that are transported by railcar. The intermodal segment is benefiting from improved pricing and load growth, with an anticipated revenue growth of 12.4 percent fueled by a 7 percent price increase, Albrecht wrote in a Dec. 15 report.
A few days before, Albrecht reported in another note that ABF Freight System Inc, the largest subsidiary of Fort Smith-based Arkansas Best Corp. and a less-than-truckload carrier, will see a 19.2 percent decline in its 2007 earnings.
ABF Freight System Inc. has expanded its regional transportation network into Central and Southern states as part of its new offering of next-day and second-day delivery service, but Albrecht stated an overall weak pricing environment will pinch the company's earnings.
Van Buren-based truckload carrier USA Truck Inc.recently opened a new operations center in Spartanburg, S.C., to take advantage of regional shipping in the Southeast, but one analyst saw the move as one that isn't likely to help the company's near-term profitability.
Competition for new entrants in regional shipping "can be fierce," Chaz Jones, an analyst with Morgan Keegan & Co. Inc. in Memphis, recently wrote.
Like Albrecht with ABF, Jones sees the company's earnings per share hurt by "lackluster freight demand" and "diminishing pricing power." (Morgan Keegan does business with and seeks to do business with USA Truck.)
P.A.M. Transportation Services Inc. has posted several quarters of relative strength riding the back of the auto industry but analyst Thom Albrecht of Stephens Inc. predicts 2007 will be challenging for the Tontitown-based truckload carrier.
"Potentially lower automotive volumes due to the announced production cuts by General Motors and other as well as rate pressure on the company's non-automotive business are two of the biggest challenges P.A.M. will face in 2007," Albrecht said.
Auto business represents about 48 percent of the P.A.M.'s revenues, according to Albrecht who recently lowered his 2007 earnings estimate from $1.95 to $1.63 compared to $1.83 for fiscal 2006. (Stephens Inc. maintains a market in PAM shares and expects to receive or intends to seek compensation for investment banking services from the company in the next three months.)
Profit still can happen this year, Kidd said, but it might not be enough to satisfy some industry watchers.
"Part of the problem in the industry is the analysts who write about trucking and project what earnings should be frequently overstate expectations, then blame it on the company for not meeting them," he said. "That's what USA Truck has run into. It's not as if these companies aren't making money, they're just not making as much as an analyst thinks they should be."
No comments:
Post a Comment