Shares of less-than-truckload carriers were priced for beat-and-raise results heading into earnings season. Saia missed first-quarter expectations Friday, sending its stock 20% lower and pulling the rest of its peer group down for a second time in a week.
Saia (NASDAQ: SAIA) said March didn’t provide the seasonal demand uptick the company normally experiences. The update followed an in-line report from Old Dominion Freight Line (NASDAQ: ODFL) on Wednesday, which accelerated a sell-off that started earlier in the month as the broader market began to move lower and as some analysts reeled in numbers heading into the quarterly prints.
In less than three weeks, Saia’s shares are down more than 25%.
The relative volume weakness in March hasn’t soured the company’s robust growth plans.
Saia plans to open 15 to 20 new terminals in 2024 and will relocate some operations into bigger facilities or to better locations. It has opened four and relocated four terminals so far this year. The bulk of the remaining locations will be opened in the third quarter, with a concentration in the Great Plains.
The company has acquired 28 terminals (11 of which are leased) from bankrupt Yellow Corp.’s (OTC: YELLQ) estate. Starting with a Northeast expansion project in 2017, the company has opened 50 locations. It will spend roughly $550 million on real estate this year, increasing its door count approximately 12% to 14%. It will also spend a total of $400 million on equipment to accommodate its growth goals.
Saia reported first-quarter earnings per share of $3.38, 7 cents light of the consensus estimate but 53 cents higher year over year (y/y).
Revenue increased 14% y/y to $755 million as tonnage per day increased 6% and revenue per hundredweight, or yield, was up 8% (11% higher excluding fuel surcharges). The tonnage increase was the combination of a 16% increase in shipments partially offset by an 8% decline in weight per shipment.
The decline in shipment weight drove the increase in the yield metric.
Compared to the fourth quarter, tonnage per day was down 1% as was yield when excluding fuel surcharges.
Shipments per day were up 16.8% y/y in March but light of management’s expectation. So far in April, shipments are up 17% y/y while tonnage is 6.5% higher. The company said the April metrics are benefiting by one to two percentage points as Good Friday was in March this year versus April last year.
“We’re focused on generating value to our customer and generating returns for our shareholders,” said Fritz Holzgrefe, Saia’s president and CEO, on a Friday call with analysts. “We don’t stay fixated on volume numbers. We stay fixated on making sure we meet those first two expectations.”
Saia’s shipments per day are up 16% over the past year to 33,000. The carrier has been one of the most active taking share since Yellow’s closure last summer.
Revenue per shipment increased just 1.4% y/y excluding fuel and was down 0.4% from the fourth quarter. That too drew concern from analysts, who have built their bullish outlooks for the space on carriers’ idiosyncratic ability to price freight meaningfully above cost inflation.
Management countered that there hasn’t been a change in pricing philosophy and that the company has been taking more shipments from large, national accounts, which sometimes have thinner margins. The decline in weight per shipment as well as a 0.4% dip in length of haul also weighed on the metric.
“If I’m getting some economies on the cost side, so when I go to pick up with one of the larger accounts, instead of getting two or three bills, I’m getting five or six. … I get really good cost economies there,” said CFO Doug Col.
The decline in cost per shipment was greater than the decline in revenue per shipment by 80 basis points in the quarter.
“If you give us a stronger macro backdrop I’d still say … you’re going to see another leg up in this pricing. It’s not getting any cheaper to do what all of us do,” Col added.
Contractual renewals averaged a 9.2% increase in the period, 50 bps higher than the average increase booked in the fourth quarter.
Management forecast second-quarter revenue to increase by a mid-single-digit percentage from the first quarter. That roughly implies a 15% y/y increase, which would be approximately $35 million light of the current $829 million consensus estimate.
The company posted an 84.4% operating ratio, which was 60 bps better y/y and sequentially. The result was in line with normal sequential improvement of 50 to 75 bps even with worse-than-normal weather in January.
The salaries, wages and benefits expense line (as a percentage of revenue) was flat y/y even with a 15% increase to head count and the implementation of a 4.1% wage increase last July. Depreciation and amortization expenses (as a percentage of revenue) were also flat y/y despite the recent growth-oriented investments.
Saia normally sees 250 to 300 bps of OR improvement from the first to second quarter. However, this year it’s forecasting just 150 to 200 bps of improvement given the costs associated with opening new terminals. The company reiterated its forecast for 100 to 150 bps of OR improvement for full-year 2024.
Saia also announced Friday that Col will be retiring after 10 years with the company. He will remain in the role through the rest of the year to ensure a smooth transition.
Shares of SAIA were down 21.3% at 12:06 p.m. EDT on Friday compared to the S&P 500, which was up 1%. XPO (NYSE: XPO) was down 10.2%, ArcBest (NASDAQ: ARCB) was off 6.8% and ODFL was down 6%.
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