According to the American Trucking Association, or ATA, its seasonally adjusted For-Hire Truck Tonnage index reached 126 in May 2013, showing growth of just 2.3%. This continues the slumping trend for the second quarter in a row, but it is also 6.7% growth year-over-year. The ATA expects that tonnage growth will remain flat or slightly improve, with momentum gaining throughout 2013; the second half of 2013 should provide good freight growth. Here are three trucking companies that are vying to ride the coming rebound to growth by betting on new contracts and differentiating their business models and services.
Intermodal and dedicated segments showing growth opportunities
The intermodal segment is key to J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT); this segment of the company reported $796.3 million in revenue in the first quarter of 2013, about 60% of the company’s total revenue. The company anticipates that its intermodal volumes will grow by 13% in 2013 due to significant market presence and its efficient network. J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT) already added more than 1,300 containers to its intermodal segment in the first quarter, and is aiming for a target of 5,800 new containers by the end of the year. The company also expects revenue per load to show an increase of 1% year-over-year to $2169 per oad in the second quarter of 2013. The intermodal segment’s revenue will grow an estimated 14.3% over 2012’s numbers, to $3.51 billion in 2013.
J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT)’s dedicated contract services, or DCS, segment accounted for 21% of the company’s total revenue in 2012. The company gained two contracts, including a deal for 200 tractors in the fourth quarter of 2012 and another contract for 800 tractors in the first quarter of 2013. This means the company’s tractor fleet is increasing nearly 20% over its annual tractor count in 2012. The company incurred $1.7 million of start-up costs in the first quarter and is estimating another $2.5 million in the next two quarters, but these contracts are expected to drive the company’s revenue by the second half of 2013. This will help its DCS segment to register revenue growth of around 13% in 2013 year-over-year. It is expected that the DCS segment’s revenue will increase to $1.22 billion in this year.
Reduced revenue estimates
Landstar System, Inc. (NASDAQ:LSTR)’s flatbed business has fallen and it can’t get up. Truckload volumes and revenue per load have both declined in the first eight weeks of the second quarter of 2013, and Landstar System, Inc. (NASDAQ:LSTR) isn’t expecting any improvement in the second quarter of 2013. The company has stated that its revenue decline accelerated after the first quarter of 2013, estimating $600-$700 million revenue in the second quarter of 2013–about a 6% year-over-year decline. Analysts estimate that Landstar will fall short of its goal of $3 billion in revenue during fiscal year 2013, generating revenue of around $2.8 billion instead.
Landstar System, Inc. (NASDAQ:LSTR) is trying to staunch the bleeding by shifting its focus to its agent-based model and making its agents more efficient and productive. The company’s sales force is its network of agents, who are also responsible for transporting loads. Landstar System, Inc. (NASDAQ:LSTR) wants to utilize its full capacity by providing transportation opportunities to new locations, so it has worked to bring on more agents. These agent additions generated 2.2% of revenue in the first quarter of 2013, and are expected to generate about 5% of total revenue for the remaining year.
Tonnage growth and real estate investment
Old Dominion Freight Line (NASDAQ:ODFL) has improved its less-than-truckload, or LTL, operations in the second quarter of 2013. The company is continuously gaining market share through its differentiated LTL services. Old Dominion Freight Line (NASDAQ:ODFL) has differentiated its services through consistent execution of on-time and damage-free service at a fair and equitable price. Old Dominion is expecting an increase in its tonnage growth for the second quarter of 2013. The company updated its tonnage per day growth to 5%-5.5% year-over-year from its previous expectation of 4.5%-5% in the second quarter. Revenue per hundredweight, less fuel surcharge, is expected to be around $12.96 in the second quarter–that is around 2% year-over-year growth. With these growth rates, the company’s revenue is expected to reach $583.5 million in the second quarter of 2013.
Old Dominion Freight Line (NASDAQ:ODFL) has invested about $620 million in its network expansion since 2006, but its real estate investment will likely slowdown in the near future. The company will spend $95 million on real estate in 2013. At present, the company has 220 service centers and plans to open an additional 30-35 service centers near its existing facilities. This helps generate strong returns from these service centers because of low fixed costs. With low real estate investments going forward and higher returns from its service centers, the company will generate $70 million in free cash flow in 2013 and around $160 million next year. This creates potential for shareholder returns in the form of dividends or share repurchases.
Conclusion
Increased number of containers and revenue per load will drive J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT)’s intermodal segment’s revenue in 2013. Meanwhile, Old Dominion Freight Line (NASDAQ:ODFL)’s tonnage growth is expected to result in higher revenue in the second quarter of 2013. Additional service centers and the expected slowdown in real estate investment will generate free cash flows in 2013 that will create potential for capital returns to its shareholders. Both of these stocks are a “buy.”
Landstar System, Inc. (NASDAQ:LSTR) is facing the one-two punch of declining truckload volume and revenue per load. Its revenue will be lower in the second quarter of 2013 despite its addition of more agents to its force. This stock is a “hold.”
Madhukar Dubey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article How Should You Trade These Trucking Stocks? originally appeared on Fool.com and is written by Madhukar Dubey.
Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
