FWRD 2Q Consolidated Revenue Increased

Forward Air’s FWRD second-quarter consolidated revenue increased 8% but was roughly flat when excluding the addition of TQI, which was acquired in March. The core airport-to-airport business fell 5% from last year, driven by 3% deterioration in total yield and a low-single-digit fall in tonnage. A large portion of the revenue decline relates to a previously announced customer loss ($6 million impact). Forward Air Solutions (the pooled distribution business) posted solid 32% sales growth, supported by a few previously announced, sizable new contract wins. In the airport-to-airport segment, core line-haul yield (excluding fuel surcharges) contributed 40 basis points to the overall 3% yield decline; down from positive 2% in the first quarter. Sluggish freight demand continues to drive elevated price competition throughout the industry.

Total tonnage fell 2%, with average weekly tonnage down about the same. On a year-over-year basis, average weekly volume was up 2% in April, but was flat in May and down 6% in June. Management hinted that demand remains quite lumpy thus far in July, and visibility regarding the second half of the year is low. Total operating margin declined 150 basis points, likely reflecting lost leverage from lower tonnage, new-business startup costs at Solutions, and TQI integration outlays.

Margins in the core Forward Air unit were flat, and Solutions posted a 1% loss, which compares to a similar shortfall in the same period last year and a 3.6% loss last quarter. Solutions’ margins were negatively impacted by difficulties on-boarding new business during the quarter, though the firm appears to be aggressively addressing those issues. The company expects third-quarter 2013 revenue to expand 10% to 15% year-over-year (including a 8% boost from TQI), with EPS in a range of $0.43-$0.48 (below previous Street consensus of $0.52).

Forward Air is an asset-light provider of time-definite truck transportation to the North American deferred air freight shipping market. Airport-to-airport trucking reflects 67% of sales, while logistics (expedited truckload brokerage) represents 14%, pooled distribution makes up 14%, and other services (warehousing, terminal handling) produce 5%. The firm operates terminals at or near airports in 87 cities throughout North America. Strategic initiatives include expanding complementary services and shoring up its pooled distribution unit.

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