EUR 850.00 For Business Accounts Only

Morningstar | Schneider’s Pricing Backdrop Will Moderate in 2019, but Growth Opportunities Remain

Multi-modal transportation specialist Schneider National’s revenue before fuel surcharges grew 9.5%, mostly in line with our forecast. Truckload division revenue before fuel came in slightly below our expectations as the tractor fleet declined more than we anticipated. However, that was offset by a strong showing in the intermodal unit. Relative to the same period last year, the intermodal and asset-light truck brokerage businesses were the primary drivers of top-line growth. Both have benefited nicely from unusually tight truckload-industry capacity throughout most of 2018, which drove up contract pricing and truck-to-rail conversion activity for intermodal, while boosting load volume for truck brokerage. Naturally, the firm’s asset-based trucking division also enjoyed solid rate gains, but efforts to optimize the service portfolio mix (including shedding contracts in the specialty-dedicated unit) slowed its growth trajectory.

The adjusted total operating ratio (expenses/revenue, net of fuel surcharges) improved 90 basis points to 89.8%, as overall top-line growth, impressive intermodal network management, and solid execution in truck brokerage more than offset driver-related cost inflation and elevated outlays associated with the relatively new Final-Mile delivery offering. Consolidated profitability was largely in line with our expected run rate.

Since our midcycle revenue growth and margin assumptions remain intact, we do not expect to materially alter our $24 fair value estimate. Throughout 2017 and the first half of 2018, Schneider’s shares traded in slightly overvalued territory. That said, valuations across the trucking space eased in the second half as investors recognized the robust pricing backdrop (rooted in historically tight industry capacity) had peaked and 2019 would usher in much more modest growth trends for truckers and logistics providers as conditions normalize. As of Jan. 31, the shares are trading in modestly undervalued territory.

In terms of our outlook, we continue to expect Schneider’s top-line growth to moderate significantly in 2019 as the truckload capacity crunch is showing signs of easing and year-over-year pricing comparisons are becoming quite challenging. That said, previous contract pricing gains should remain a tailwind in the first half, and we don’t currently expect freight demand to fall off a cliff. In our view, Schneider also has several incremental growth opportunities (albeit at a more moderate pace than 2018) in the year ahead as it continues to invest in and optimize its intermodal and asset-light highway brokerage operations, and as its final mile delivery offering gains more traction.