Trucking stocks are falling at a rate generally in line with the broader decline in equities, with few companies sticking out as being particularly strong or weak.
A quick look at some of the biggest names in the market shows that Heartland (NASDAQ: HTLD) has performed better than other stocks among a selected group of key names, dropping 19.92% in the last month, according to data on Barchart. Meanwhile, Hub Group (NASDAQ: HUBG), an intermodal carrier, is down 31.87% during that time.
Since February 1, the S&P 500 is down a little less than 25%.
Saia (NASDAQ: SAIA) also has taken a big hit and that's not surprising; the less-than-truckload (LTL) carrier is viewed as being particularly exposed to industrial demand – particularly in the oil and gas sector. It's down 32.16% in the past month. Meanwhile, Old Dominion (NASDAQ: ODFL) is down 24% and ArcBest (NASDAQ: ARCB), is down 29%. Both are LTL carriers.
Among other truckload carriers, Schneider (NYSE: SNDR) in the last month has declined 25.45%, Knight Swift (NYSE: KNX) is down 28.45% and Werner (NASDAQ: WERN) has been one of the stronger performers with a drop of "only" 21.77%. J.B. Hunt (NASDAQ: JBHT), which straddles both the truckload and intermodals worlds, is down 27.17%.
Knight Swift stock in the last month Source: Barchart
The slump is coming even as the industry has experienced an unexpected boost in freight rates to resupply a run on consumer staples. The result of the restocking is that trucking appears to be one of the few businesses in the U.S. actually doing well as a result of the coronavirus. That is evidenced in the Outbound Tender Volume Index in FreightWaves' SONAR market dashboard.
But Todd Fowler, equity research analyst at KeyBanc Capital Markets, said he doesn't expect that demand surge to significantly alter trucking companies' bottom line.
"While we've seen some sequential improvement in rates, I would tell you that the weakness we've seen in volume coming to the ports is likely to persist in March," Fowler told FreightWaves. He noted that volumes into ports like Los Angeles/Long Beach are down 20%, "and that is going to more than offset this little seasonal improvement we're seeing in rates."
The rise in rates – some lanes saw boosts in the past week of up to 10 cents per mile – comes on the back of a huge surge in volume to restock shelves emptied by frenetic shoppers trying to lay in supplies in anticipation of: a) the coronavirus; b) everybody else doing the same thing they were doing and the concurrent fear those supplies would be exhausted.
But that's not going to be enough to turn around company performance in the first quarter, Fowler said. "It's not going to be a complete disaster," he said. "There will be some small positives. But there are broader headwinds and concern about the longer-term outlook going forward."
The transportation team at Deutsche Bank led by Amit Mehrotra put the companies it follows through a "stress test." The test concluded that U.S. transportation equities, excluding railroads, are discounting a 27% drop in earnings from their current levels, which is right in the range where most trucking equities are down in the past month. Mehrotra's team said the usual discount for recessionary times is 16%.
"Our work signals a bottoming of U.S. transportation equities following recent market correction," the report said. The team specifically cited SAIA, Hunt and FedEx (NYSE: FDX) as companies that are "most interesting when assessing potential dislocations." (FedEx is down about 40% in the last month.)
The report was positive in other areas. It mentioned the restocking of store shelves as discussed by Werner and Knight Swift management as a boost to recent operations. Based on discussions with Knight Swift management, whose earnings are always considered a bellwether, no revision to its forecast for the quarter is expected, "which is encouraging in the context of market fears and volatility," Deutsche Bank said.
As for LTL carriers, Deutsche Bank said SAIA's weight per shipment is stable (though in its own report, it cited a very strong January and a flat February). It also said Old Dominion management had indicated to Deutsche that business trends were "as expected, showing acceleration throughout February and into early March."
Fowler said he saw room for possible downgrades or disappointments. In the first quarter, March is key as spring and Easter volumes move through the system after a generally slower January and February. "I wouldn't be surprised if we get into first quarter earnings season and people have to adjust their numbers," he said. With March being key to that period's performance, analysts and companies might be in a "wait and see" situation.
"There's probably more downside risk to full-year guidance," he said.
The transportation research team at Morgan Stanley led by Ravi Shanker just concluded its bi-weekly survey of market sentiment. The survey results were that 80% of transportation industry "stakeholders" are already seeing an impact from COVID-19, up from 60% two weeks ago. About half expect "medium to high" impact in the next three months.
The survey consisted of 350 shippers, carriers and brokers.
The U.S. West Coast was the focus of a great deal of commentary, the Morgan Stanley report said. "Many comments noted both excess [intermodal] capacity and also the hike in trucking rates to move product to the West given lack of freight once those drivers are out there," the report said.
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