EUR 850.00 For Business Accounts Only

Morningstar | SNDR Updated Forecasts and Estimates from 03 May 2019

Multi-modal transportation specialist Schneider National’s total revenue before fuel surcharges grew 6% year over year. Revenue growth came in slightly behind our forecast due to slowing secondary-lane contractual volumes in the firm’s asset-based truckload shipping division, though a strong showing in the intermodal segment partly offset that shortfall. Relative to the same period last year, top-line growth was driven by intermodal pricing strength and solid truck brokerage load volume. Schneider’s total operating ratio (expenses/revenue, net of fuel surcharges) came in modestly below our expected run rate, largely because of the utilization hit from softer contractual volumes in the truckload segment as well as from weather-related outlays in intermodal.

Since our midcycle revenue growth and margin assumptions remain largely 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 have since eased as investors increasingly recognized the robust pricing backdrop (rooted in historically tight industry capacity) had peaked and 2019 would usher in much more modest growth trends as conditions normalize. The shares are currently trading in modestly undervalued territory relative to our long-term expectations for profitability and free cash flow growth.

In our view, Schneider has several incremental opportunities for growth (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 relatively new final mile delivery offering irons out excess costs while gaining more traction.

In terms of first-quarter highlights, the intermodal and asset-light truck brokerage businesses were the primary drivers of top-line growth. Intermodal revenue before fuel grew 18% on the back of a 14% rise in revenue per order and 3% volume growth. Year-over-year volume trends moderated sequentially (it increased 16% in the fourth quarter and 10% for all of 2018) due in part to softening underlying freight demand this year and Class-I network disruption linked to unusually strong winter weather headwinds. That said, management sounded relatively optimistic about growth opportunities this year given recent bid awards. Logistics revenue before fuel was up 10.5% on strong double digit load volume, likely offset by lower average pricing (sell-rates) to shippers. Pricing across the truck brokerage industry is facing very tough comparisons and since the truckload capacity crunch has eased, spot rates have normalized downward and contract rates are gradually following that trend. Schneider's asset-based truckload segment revenue before fuel declined 3.5% due mostly to the aforementioned softening in contractual volumes, though management is rectifying the issue by optimizing its mix of primary-lane versus secondary-lane business.

The adjusted total operating ratio (expenses/revenue, net of fuel surcharges) deteriorated by 190 basis points to 95.2%, primarily because of lower truckload-segment utilization, elevated final mile-segment outlays, and elevated weather-related intermodal costs (higher drayage and storage costs). We expect sequential OR improvement in the quarters ahead as the firm works through truckload division cost headwinds that are within its control.