Thursday, April 7, 2016

INVESTORS DO THUMBS DOWN ON TRUCKING STOCKS

This reflects a failure by investors to understand what Amazon has done to logistics and to retail supply chains.




Trucking Stocks Tumble on Downgrade, Pricing Outlook

Analysts say that plentiful capacity in the truckload sector has shipping customers pressing carriers to cut prices




One analyst said contract bids coming in for carriers “are not looking that good,” raising concerns about profit margins later this year. ENLARGE
One analyst said contract bids coming in for carriers “are not looking that good,” raising concerns about profit margins later this year. Photo: Bloomberg News
Share prices in truckload freight carriers dipped sharply on Thursday after analysts at Stifel Inc. downgraded several operators, saying that pricing for long-haul trucking services is expected to remain weak for the rest of the year.
Truckload carriers fill their trailers with products from one individual shipper and typically carry them from a port or a warehouse to a distribution center. The four companies Stifel targeted for downgrades Thursday morning were USA Truck Inc., USAK -10.84 % Hub Group Inc., HUBG -4.98 % Marten Transport Ltd. MRTN -6.35 % and Universal Truckload Services Inc. UACL -5.22 %
Shares of USA Truck, which received the most severe downgrade—from “hold” to “sell”—fell 10.4% on the Nasdaq Stock Market NDAQ -1.22 % by early afternoon. The others, all downgraded from “buy” to “hold,” had fallen by between 3% and 7% each. Shares in other companies in the sector, including Knight Transportation Inc., KNX -2.61 % Heartland Express Inc., HTLD -2.22 % Covenant Transportation Group Inc. CVTI -3.81 % and Celadon Group Inc., CGI -2.44 % also were dragged down, with each falling from 2% to 5% by midday.

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Stifel last week released a report targeting the entire truckload industry, writing that “pricing pressure is rampant in the generic freight market,” which includes most types of trucking services, while railroad carload pricing and freight rates among parcel carriers are on the rise.
“Many shippers have effectively elected to toss to the wayside any talk of partnerships, relationships, cooperation, collaboration, etc.,” the report read. “Shippers are under enormous pressure to cut transportation costs and seem not to be satisfied with the massive fuel surcharge reductions racked up over the past year and a half.”
John Larkin, a Stifel managing director and the report’s lead author, declined to comment.
Shares of most trucking companies have been rising since mid-January, when retailer s showed signs that they had resumed restocking after the holiday shopping season and some manufacturing measures began turning upward. But several trucking industry research groups have said capacity in the market remains relatively plentiful, giving shipping customers more leverage.

The pendulum has swung in the favor of the shippers, and they’re clawing back some of the rates.
—Jason Seidl, Cowen & Co.
The downgrades wiped out the 8% year-to-date gain that USA Truck achieved in late March. Universal Truckload’s shares settled at $14.90 just after 3 p.m. on Thursday, down 5.7% on the day, but still up 6.1% since January 1.
Marten, which specializes in hauling refrigerated shipments, had seen its shares rise as high as $18.72 at the end of last month, by Thursday afternoon had ventured into the red on the year, with its stock price falling 6.3% to $17.11. Hub Group, which in February hired bankers to help it identify companies it could acquire to diversify operations, is still up by more than 13% since January 1, although its share price fell by more than 4% on Thursday.
“It’s bid season, and the contract bids that are coming in are not looking that good,” said Jason Seidl, an analyst with Cowen & Co. who has downgraded two of the largest truckload carrier stocks, Knight and Landstar System Inc., LSTR -0.59 % in the last three weeks. “We’ve gotten slightly more negative on the trucking in the last month…. The pendulum has swung in the favor of the shippers, and they’re clawing back some of the rates.”
Write to Robbie Whelan at robbie.whelan@wsj.com