Lastly, the LTLs saw severe weather interruptions to their entire networks in some instances, which should result in tonnage declines. In its mid-quarter update, Old Dominion Freight Line (NASDAQ: ODFL) said that tonnage was down 1.5 percent y/y through February, but that yields (revenue per hundredweight) had increased 9.6 percent y/y. SAIA (NASDAQ: SAIA) reported that tonnage was down 2.9 percent y/y in January and -3.2 percent y/y in February.

While FDX gave a less than inspiring earnings report last month warning of weaker global trade growth, its freight division (LTL) reported that shipments per day increased 5.6 percent y/y, which was partially offset by a 2 percent y/y decline in weight per shipment. Further, the company noted that revenue per hundredweight increased 6.6 percent y/y. The commentary from the LTLs this quarter will mostly focus on yield/price outlook and their ability to stay rate- disciplined moving forward.

The brighter side

The recent softness in freight fundamentals hasn’t spooked the markets. The S&P 500 is up 16 percent for the year, the railroad stocks are up 24.1 percent, TL stocks are up 15.3 percent, LTL stocks are up 16.8 percent (excluding the outsized gain of YRC Worldwide – NASDAQ: YRCW) and airfreight stocks are up 14.9 percent. Further, even with the recovery in the transportation stocks since the end of the year and the modest haircut to earnings estimates, the group isn’t trading beyond its historical averages.

Rails could be considered a little toppy at 18.4x and 16.3x 2019 and 2020 consensus estimates, respectively, but you would have to go back to mid-2016 to find them below that range. Top-line almost doesn’t matter with the rails as long as core pricing is positive, which it always is, and operating ratios improvements are on the table, which they always are – until they aren’t. The TLs are trading at 12.9x and 11.9x 2019 and 2020 consensus estimates (14.8x and 13.8x excluding a couple of the less expensive names), the LTLs are trading at 14.8x and 13.2x forward estimates and airfreight is 11.8x and 10.8x forward estimates. Again, draw your own conclusions as to valuation, but these multiples appear to be in-line with historical averages (S&P 500 Index trades at 17.5x and 16.5x forward estimates).

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Pricing commentary should have a positive tone this earnings season, albeit tempered from the fourth quarter 2018 earnings season, as contractual pricing could continue to move higher.





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