Logistics is the lifeblood of the economy. Earnings from logistics providers show things are pretty bad right now, but there is still some hope.
Railroad operator
CSX
(ticker: CSX) and trucker
Knight-Swift Transportation
(KNX) reported second-quarter numbers on Thursday. The stocks were going in opposite directions early Friday, but the message both delivered about the economy was the same.
Knight-Swift reported earnings of 49 cents a share. Wall Street was looking for 53 cents and lowered its earnings outlook.
“Q2 results were very challenging,” wrote Baird analyst Garrett Holland. “The acute demand/rate pressure without expense relief revealed trough [earnings] that are much lower than anticipated.” Knight-Swift said it now expects to earn about $2.20 a share in 2023. Prior guidance was $3.45 a share. Unit price is falling faster than expected.
Knight-Swift’s results looked lousy, but the shares were up 2.6% on Friday while the
S&P 500
and
Dow Jones Industrial Averag
e were both slightly in the green.
Things are bad now, but on a Thursday evening conference call Knight-Swift management said the inventory destocking process, which has lowered the need for truckers to ship new product to stores, was in its “final stage.”
Baird’s Holland wrote he was a buyer on any weakness, noting that spot market freight rates are bottoming and profitability will improve when demand returns. He rates shares Buy and has a $65 price target for the stock.
On the surface, CSX delivered the stronger quarter. It reported adjusted earnings of 49 cents a share, in line with what Wall Street was looking for. Shares were down anyway, falling 4.2%.
“CSX expectations were for a 2Q beat,” wrote Citi analyst Christian Wetherbee in a report. He lowered his second-half earnings estimates by about 6% after the company’s earnings report. Still, he’s optimistic about the future. “We continue to view the U.S. rails as well-positioned for a 2024 inflection in earnings power based on better balance of volume and [costs] and solid pricing.”
He rates CSX shares a Buy and has a $38 price target on the stock.
The stocks were going in opposite directions Friday, but both companies and analysts see better times ahead and a bottom for freight in 2023. That’s good news.
Stock reactions don’t always correspond with the broader message for the economy.
Write to Al Root at [email protected]
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