Cost Cutting to the Rescue for Truckload Carriers

Cost cutting will likely be the theme for the third quarter for truckload carriers, says William Green, Morgan Stanley Research. After CSX, Werner Enterprises, and JB Hunt beat analyst expectations based on cost cutting, “we expect cost surprises to be a consistent theme this earnings season,” Greene commented.

“The magnitude may be smaller at carriers such as Heartland and Knight where already strong margins leave less room for upside,” Greene continued. Coupled with weaker-than-expected pricing trends, Greene says he wouldn't look for those carriers to beat expectations by as large a margin. “That said, weaker truckload pricing and excess capacity might be a positive sign for CH Robinson.”

Werner reported third-quarter earnings per share of 26 cents, well above analyst estimates of 20 cents.

“Cost control drove the beat [at Werner] primarily through fuel efficiency, lower deadhead, and insurance savings,” Greene noted. Similarly, JB Hunt reported earnings of 31 cents per share vs. estimates of 29 cents. “The beat [for Hunt] came from a faster ramp in dedicated contracts, but strong cost control produced nearly breakeven truck margins. Utilization also surprised to the upside at both carriers due to fleet reductions, a shift towards more owner operators and more discretion in selecting freight.”