Stock Market: Rising Prices, Falling Sales and Inflation Are a Bad Recipe For the Trucking Industry

The trucking industry is going through some tough times. Many companies reported a decline in revenue and profits in 2023 as lower volumes and soaring costs took their toll.

Inflation has pushed up the cost of wages, fuel, equipment, insurance, and new vehicles at a time when sales have dropped. 

The industry is further hampered by a shortage of drivers, which has been an on-going problem for several years. Long working hours, low pay, and poor benefits has resulted in fewer people entering the industry and early retirement among older employees. 

This has resulted in higher operating costs and unhappy customers as fewer drivers leads to delayed deliveries.

Another factor is increased competition. Big companies like Amazon have created their own delivery fleets and, with the growth in e-commerce, some smaller firms are doing the same. 

The result is a profit squeeze for truckers. We saw this in the annual reports from the two large trucking firms we track in my Internet Wealth Builder newsletter, U.S.-based J.B. Hunt Transport and Canadian firm TFI International. Here are updates on the stocks. 

 

J.B. Hunt Transport (JBHT-Q)

Background: This company is in the freight transportation business, providing truckload, intermodal, and contract carriage facilities to customers across a diverse set of industries in the U.S., Canada, and Mexico. It specializes in handling imports through its “shore to door” service. Major customers include the Burlington Northern and Norfolk Southern railways. J.B. Hunt is a Fortune 500 company, an S&P 500 company, and a component of the Dow Jones Transportation Average. The company is based in Arkansas. 

Performance: The share price dropped to the $166 range in late October. Then the shares changed course and have moved higher since. (All figures in U.S. dollars.)

Recent developments: Fourth quarter and year-end results showed that the company’s warnings about a slowdown in business were on target. Revenue for the quarter was $3.3 billion, down nine per cent from the same period the year before. For the full year, revenue was $12.83 billion, off 13 per cent from 2022. All sectors reported revenue declines.

Earnings were also off. For the fourth quarter, the company reported a profit of $1.47 per diluted share, a decline of 23 per cent from $1.92 per share in the same quarter of 2022. Full year earnings were $6.97 per diluted share, off 24 per cent from $9.21 the year before.

In a conference call with analysts, CEO John Roberts cited rising costs for such expenses as insurance, drivers’ salaries, and equipment, as well as reduced revenue, as being among the reasons for the big drop in profits.

Dividend and buybacks. The stock pays a quarterly dividend of $0.43 ($1.72 per year) to yield 0.8 per cent at the current price.

The company repurchased approximately137,000 shares of common stock for $25 million during the quarter. As of Dec. 31, it had approximately $392 million remaining under its share repurchase authorization. 

Outlook: The company did not issue any outlook for 2024. One of its executives said during the conference call that the current position is “wait and see.”

Action now: The stock has moved up but there is no real news to support the market’s optimism. Those considering buying should monitor the stock and begin to build a position of the share price falls below US$175.

 

TFI International Inc. (TFII-T)

Background: Based in St. Laurent, a suburb of Montreal, TFI is a transportation and logistics giant, whose network spans more than 80 North American cities. It has more than 90 operating companies under its banner and employs some 24,000 people.

Performance: The stock fell to below $150 in late October. However, it has recovered and hit a 52-week high last week.  

Recent developments: Fourth quarter and year-end results were similar to those of J.B. Hunt, with both showing weakness in revenue and profits in the face of inflation headwinds and reduced volume.

TFI reported fourth quarter revenue that was flat with last year, at just under $2 billion. But for fiscal 2023, revenue was down almost 15 per cent to $7.5 billion from $8.8 billion in fiscal 2022. 

Fourth quarter net income was $131.4 million ($1.53 per diluted share). That compared to $153.5 million ($1.74 a share) in the prior year. For the 12-month period, earnings were $504.9 million ($5.80 a share), compared to $823.2 million ($9.02 per share) in 2022.

Dividend: The stock pays a quarterly dividend of $0.40 ($1.60 a year). The shares yield 0.8 per cent at the current price. 

Outlook: The company did not provide new guidance for 2024 but CEO Alain Bedard offered some words of optimism in a statement, saying: “We’re entering 2024 in an attractive position across all four business segments…Looking ahead, while continuing our sharp focus on day-to-day operations, we can also seek highly strategic investment opportunities while returning excess cash to shareholders, consistent with our board’s recently approved 14 per cent increase to our quarterly dividend.”

Action now: We do not advise new purchases at this level but if the shares pull back to the $175 range, consider opening a position. 

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca. 

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