Analysts are cutting truckload earnings estimates again just ahead of fourth-quarter reports, which will start to trickle in later this week. Recent channel checks revealed a notable falloff in fundamentals in the back half of December, dispelling hopes that the quarter would be a transitionary period.
“We understand that multiple companies across multiple sub-sectors across our industry saw a sharp drop-off in on-the-ground activity toward the very end of December, which has the potential to wreck the quarter relative to expectations,” Morgan Stanley (NYSE: MS) analyst Ravi Shanker said in a Tuesday note to clients.
He cut numbers on all of the public transportation and logistics companies he follows, with the TL carriers seeing the largest changes — down midteen percentages or more. He also trimmed estimates for full-year 2024 but by much smaller percentages. The change comes after he published a relatively bullish 2024 outlook a week ago. That report included low-single to mid-single-digit estimate reductions for the fourth quarter, which proved too little as the dust continued to settle.
At the time he acknowledged his call, which is predicated on “an earlier and more robust upcycle in 2024 than the market expects as pressure builds on shippers to restock,” was “out-of-consensus.” Even with the weakness during the last two weeks of the year, his outlook for full-year 2024 remains largely intact, with the caveat that inventory levels may never return fully.
“In fact, we are starting to hear of potential scenarios where inventory levels may never return to prior decade levels as long as interest rates remain elevated with Shippers preferring to limit SKUs and running shorter, faster, tighter supply chains with higher turnover instead,” Shanker added.
Under that scenario, he said modes like trucking and airfreight would benefit if shippers ultimately decide to operate at leaner merchandise levels.
December Cass data also released Tuesday was a mixed bag. The year-over-year declines in shipments and expenditures slowed and TL linehaul rates showed further stabilization in the month. However, the shipments index fell to its lowest absolute level since July 2020.
Susquehanna Financial Group analyst Bascome Majors noted “a slightly more negative 4Q23 peak season for irregular route truckload” was revealed during his recent update calls.
He previously cut fourth-quarter estimates for TL carriers like Knight-Swift Transportation (NYSE: KNX), Schneider National (NYSE: SNDR) and Werner Enterprises (NASDAQ: WERN) by 5% to 21% and full-year 2024 numbers by midteen to high-20s percentages. The latest round of cuts included mostly mid-single-digit reductions to the fourth quarter, with even slighter reductions made to 2024.
He did raise his 2024 estimate for Knight-Swift by 7% to reflect better performance in its third-party insurance business. He believes the unfavorable claims experience and profit degradation the unit has experienced in recent quarters has largely passed. However, his new estimate for the carrier is still 20% below where it was at the end of 2023.
Majors’ updated outlook for 2025 still calls for a notable earnings recovery for the group, with most companies seeing 50%-plus gains after two years of declines.
Multimodal transportation provider J.B. Hunt Transport Services (NASDAQ: JBHT) kicks off the fourth-quarter earnings season Thursday after the market closes.
More FreightWaves articles by Todd Maiden
- Forward Air-Omni merger dustup heads to trial Friday
- Truckload linehaul rates stabilizing, Cass report shows
- Court OKs second Yellow terminal sale; liquidation only half complete
