Forward Air Corporation: Second-Quarter Results a Tad Weak, but Second Half Shapes Up Well


Forward Air’s second-quarter EPS rose 24%, to $0.55, which fell short of our $0.57 estimate and the $0.56 consensus. The slight miss was mostly related to revenue that was not as strong as we expected and some higher costs related to recent acquisitions. Still, we do not see any trends in the results that would lead us to believe the company will not see better performance in the second half. Management commented volumes were up in the high single digits at the start of July and believes those trends should be roughly sustainable throughout the year.

In addition, pricing is certainly improving with tighter truckload capacity, and the only issues we see are finding available trucks to match demand and controlling costs, both of which have never been an issue at Forward Air. At $47, the stock trades at about 19 times our 2015 EPS estimate; we recommend investors purchase shares at current levels as we anticipate earnings to accelerate the remainder of the year. Total revenue rose 21%, to $194 million, a little shy of our $200 million expectation. Central States Trucking (CST) contributed about $18.1 million of revenue during the quarter, thus organic growth was close to 10%.

Overall tonnage was up strong and the company benefited from yield improvement due to general rate increases, fuel surcharges, and mix. Operating ratio (OR) improved slightly by 10 basis points, to 85.8%, due to yield improvement and leverage from greater volume, which helped offset higher purchased transportation and healthcare costs. We likely got a little ahead of ourselves in embedding too much of a benefit from recent acquisitions. However, we believe the quarter was solid overall. Airport-to-airport revenue was up 11%, to $108 million, about in line with our estimate, reflective of a 4.6% increase in tonnage and 6% increase in yield. Tonnage benefited from a slight improvement in overall freight demand, as well as the company’s internal sales efforts.

The quarter tonnage progressed as follows, down 2.2% in April (timing of Easter), up 3.4% in May, and up a healthy 13.3% in June. Forward Air Complete had a solid quarter, with volume growth up 22% and an attachment rate on linehaul shipments of about 18%, close to the company’s year-end goal of about 20%. Yield improvement was the result of a 3.2% contribution from the previous general rate increase, 0.7% from fuel surcharges, and 2.1% due to the positive impact of Forward Air Complete. We anticipate yields to remain fairly strong throughout the year because of tight truckload capacity conditions and Forward Air’s ability to attract more profitable freight given limited capacity. Given the increasingly tight conditions, we would not be surprised to see another GRI by year end.

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