Forward Air Corp Fourth-Quarter Results Fall Short Mainly Due to Weather

forward air

Forward Air fourth-quarter EPS declined 7%, to $0.50, which fell well short of our $0.55 estimate and the $0.56 consensus. The miss was mainly due to increased costs associated with difficult weather while revenue growth remained healthy (up 16%, to $181 million) and volume growth was strong (airport-to-airport volume up 6%). We believe the weather challenges this winter have been unprecedented, and we were not overly surprised to see some profitability pressure as a result similar to others in the industry. While harsh weather has continued into the first quarter, it is encouraging to hear that strong volume growth has as well. This should drive some tighter capacity and allow the company to push through planned rate increases of about 2% to 3%.

We continue to believe Forward Air maintains a compelling value proposition, and newer offerings, such as Forward Air Solutions, TQI, and the recent Central States Trucking acquisition, should provide additional cross-selling opportunities to support greater growth. At $43, the stock trades at about 20 times our new 2014 EPS estimate and 18 times our new 2015 EPS estimate, and we recommend long-term investors purchase shares.

Core airport-to-airport volume (average pounds per week) increased 5.9%, a strong increase especially considering the inclement weather during the quarter. The company saw continuous monthly sequential improvement with October up 5.5%, November up 5.9%, and December up 6.3%. January volume growth fell off slightly, which is a normal seasonal pattern, but remained strong at 5.1%. We are encouraged by the company’s positive tone regarding volume growth, especially as it echoes that of several other freight providers that have recently reported. While noise from weather continues to make it difficult to fully understand the underlying volume trends, we remain optimistic that the freight volumes are improving.

Total airport-to-airport yield was down 2.5%. Management noted that it elected not to implement a general rate increase (GRI) in September. This decision was made in August before there were any clear signs that volume would accelerate. A GRI will be implemented starting in March and is expected to increase yields by 2.75%. While it will take some for the company to fully push through the GRI, given the reasonable magnitude of the increase and assuming fairly strong volume trends continue (and therefore tighter capacity), we do not believe it will be difficult to realize the full expected benefit.

 

Signup for free to be the first to receive exclusive free links. Now in your mailbox!
Join over 15,000 subscribers
Send me links

Your information will not be shared to anyone