After sagging performance in its shares, flatbed truckload operator Daseke announced Friday that it would repurchase up to $40 million of its stock.
The stock will be repurchased from “time to time” in the open market or by using a Securities and Exchange Commission Rule 10b5-1 plan, which sets the schedule and amount of trading in advance. The company said it will use cash on hand to fund the program.
Shares of Daseke (NASDAQ: DSKE) were up 14.6% on Friday at 12:41 p.m. EDT compared to the S&P 500, which was flat. However, the stock plummeted to just $4.89 per share at Thursday’s close after peaking at $12.57 in early March.
Trucking stocks sold off sharply in late March after data continued to point to a softening in the dry van spot market. As spot rates fell, so did trucking stocks. However, shares of Daseke were unfairly caught in the downdraft, according to activist investor Alta Fox Capital Management.
In an April letter to Daseke’s board, the firm urged the company “to take advantage of the steep sell-off” by buying back shares, which it viewed as undervalued. The group said investors weren’t making the distinction between the spot market and Daseke’s mostly contractual exposure, or the fact that Daseke is a portfolio of flatbed operators that don’t haul dry van freight.
“Given the company’s limited sell-side coverage and investor awareness, the market has failed to distinguish Daseke’s flatbed and specialized exposure versus the more commoditized dry van exposure of the other publicly listed trucking companies,” the letter read.
While consumer demand for hard goods is experiencing a post-pandemic reset, industrial-related markets have remained firm. The Manufacturing Purchasing Managers’ Index has remained in expansion territory for 27 consecutive months. Industrial production inflected positively year over year (y/y) in March 2021 and has remained higher since — up 4.5% y/y in 2022.
Daseke’s market cap has fallen from more than $800 million to less than $350 million since the March peak even as revenue and adjusted net income (37% higher y/y in the first half of 2022) have increased.
Alta Fox asked for Daseke to buy back $60 million in stock, roughly 10% of its market cap at the time.
“This repurchase program emphasizes our conviction in the value proposition of Daseke across market cycles and our commitment to deploying capital responsibly and opportunistically in support of initiatives that enhance shareholder value,” Daseke CEO Jonathan Shepko stated in a news release. “Our approach to sizing this buy-back was an exercise in balancing a highly attractive repurchase opportunity with the necessary discipline to preserve our continued commitment to stakeholders around balance sheet strength.”
Last year, Daseke repurchased $20.4 million in stock.
Daseke generated $130 million in free cash flow over the 12 months ended June 30, closing the second quarter with $152 million in cash. The increase in share repurchases doesn’t end its ability to pursue acquisitions, which were the primary growth path for the company in the decade that followed its founding.
In March, Daseke made a small tuck-in acquisition of a hazardous materials fleet in the Northeast. The immediately accretive deal was executed at a purchase price of $19.3 million, approximately 1x revenue and a little more than 3x forward adjusted earnings before interest, taxes, depreciation and amortization. That was the company’s first deal since hitting the pause button on M&A in 2019 to better integrate what it had already purchased.
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