7 February 2024ARCB earnings - Less than truckload (LTL) company ARCB reported good 4Q operating results yesterday. The company’s asset-based business achieved OR of 87.7%, which was about 100 basis points better sequentially. Underlying operating profit was 12% better than our model and high-single-digit % better profits in asset based (similar beat vs. consensus). Asset-based revenues were down by over $30 million sequentially but profits were up, highlighting good performance on costs (total asset based opex down 7% sequentially led by big declines in rents, purchased transportation and shared services). But we also note volume was lower, with tonnage per day down 6% sequentially and shipments down just over 2% sequentially. The company noted January total daily tonnage was down 18% year over year with shipments down 9% year over year, though yield is up 13% and revenue per shipment is up 2%. The January volume update was likely impacted by weather, though it’s quite a bit weaker year over year. The bottom line is ARCB's operating results were good in the context of a still lackluster market, and while the company continues to see the OR benefit from a more disciplined pricing strategy, volumes are clearly being impacted. This makes it even more clear that it’s hard to expand volumes and OR at the same time in the current market, like SAIA is doing, though we think ARCB's shares are well positioned when there’s a broader recovery in freight.We update our 2024 EPS estimate to $10.62 (up from $10.37) and our 2025 EPS estimate to $13.06 (up from $12.86). We project tonnage and yield to be generally ahead of seasonality supported by capacity and service improvement. We forecast moderately better OR generally vs. seasonality on continued momentum from productivity and mix. We're raising our price target to $150 (up from $148) based on unchanged 11.5x our 2025 EPS estimate. Key risks include continued weak trucking sector fundamentals and deteriorating LTL industry price discipline.WERN earnings - Like all truckload companies, Werner reported a difficult 4Q and guidance for 2024 isn't anything to write home about, with the company projecting one-way yield down 3-6% which implies no growth or negative earnings growth in 2024. But there's not a lot of visibility and things can change quickly, so we suspect forward estimates will come down, but the multiple can expand as market participants keep on holding to the hope of a rebound. Given TL is the earliest of early cycle subsectors, this makes sense, but the shares are likely range bound until signs of life in the market emerge. With respect to the quarter, WERN reported trucking operating profit of just $37 million, which is about 10% below consensus. Amit MehrotraResearch Analyst+1-212-250-2076Ben MohrResearch Analyst+1-212-250-1708Chris RobertsonResearch Analyst+1-212-250-99...
