As the economy slows, those companies like CH Robinson (CHRW) and Landstar (LSTR) that get their capacity from independent contractors on an as-needed basis have lower overhead expenses and remain profitable. If the economy slows much further, Yellow’s guidance reductions will be even larger.
My lack of appetite was well founded, as trucker YRC Worldwide (YRCW) - the trucker formerly known as Yellow - is down 22% since then while CH Robinson and Landstar are flat or up. As to the economy, the ATA trucking index says it all:
The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 0.1 percent in June, marking the third consecutive month-to-month drop. Tonnage fell 1.3 percent in May and has dropped 3.5 percent since March. The not seasonally adjusted index dropped 3.3 percent from May to 114.1.
On a seasonally adjusted basis, the tonnage index declined to a seven-month low of 110.5 (2000 = 100) in June from 110.6 the previous month. Compared with a year earlier, tonnage was down 3.4 percent in June, which is just a slight improvement from the 3.6 percent year-over-year decrease in May.
Meanwhile, Yellow’s guidance reductions have indeed been large. From initial expectations of $5.65-$5.85 for 2006 the company ended up earning just $5.00. What had once been expected to be an up year in 2007 is now forecast at just $3.17 and estimates have been steadily dropping for the last 90 days. It is probably safe to say that few investors believe the $3.81 forecast for 2008.
But still, even with the current depressed earnings, there are earnings. Further, it looks like it would take a significant further decline for the company to end up with a loss. The trailing twelve month EV/EBITDA is a mere 4.35x. Given that the cycle peak earnings should still someday be in the $6.00 range, the stock is starting to look like a bargain.
I’m not the only one who thinks so, either. According to StockPickr, the January 35 calls have seen unusually high trading volume lately. I’m thinking those traders may be on to something.
YRCW 1-yr chart: