In a call with analysts on Friday, the management of Front air (NASDAQ: FWRD) has set margin targets after posting a pace of first quarter profit and releasing a forecast well ahead of expectations.
On Thursday after the close, the Greeneville, Tennessee-based light transportation and logistics company reported net income from continuing operations of 60 cents per share, 3 cents ahead of consensus and 19 cents better than year after year.
Continuing operations exclude the high frequency pool distribution segment, which was sold in february.
Outlook goes higher
The outlook for the second quarter was significantly higher than analysts’ expectations. Revenue is expected to grow 35% to 40% year-over-year, or $ 387 million at mid-point from the consensus estimate of $ 349 million. Earnings per share were expected in a range of 96 cents to $ 1, against a consensus of 79 cents.
Behind the bullish outlook hides the “strongest March ever,” according to Tom Schmitt, President, President and CEO.
Schmitt said Forward saw March tonnage increase 32.6% year-over-year in its expedited freight segment with fewer trucks recording an operating margin of 15.6%. The tonnage comparison was easy because it includes a decrease in freight during the second half of March 2020 when COVID-related shutdowns widened.
However, the tonnage was 10.8% higher than in March 2018, a big year for the industry.
Additionally, April did not experience a slowdown from March, with tonnage increasing 56% from April 2020, although another easy comparison. Schmitt said Forward has recently experienced several high volume days that have “never been seen before” by the company, referring to the current market as “boom times right now.”
Schmitt summed up the month by saying, “Love our April”.
Margins will increase sooner or later
Schmitt believes the company has reached an inflection point in its operations following several acquisitions over the past two years, most notably in the last mile and intermodal markets, as well as the addition of LTL sites. LTL service is now managed from over 100 locations currently with the expectation that at least 10 facilities will be added each year over the next three years.
Some investors have been concerned about expansion beyond the company’s traditional core airport-to-airport LTL offering, but Schmitt believes management has control over the company’s past acquisitions and that operational improvement is on the horizon.
In LTL, the company inherited some anywhere-to-anywhere delivery business through acquisitions that squeezed margins and the anger of investors. Schmitt said the growing growth of the business resulted in the taking on of freight that was not priced at its level of complexity. The current tightness of the capacities makes it possible to bring these efficiencies to acceptable levels.
Of the society recent general rate increase of 6% was accepted by customers without any reluctance. By adding accessory increases and general yield improvement efforts, the company is seeing double-digit rate renewals.
He said that the company’s main LTL business can still generate 18% to 19% margins and its new LTL business can reach 12% to 13% margins. The LTL all-in operating margin is expected to be 15% to 16%. The accelerated division’s other offerings – truckload and last mile – are expected to produce high single-digit margins.
Intermodal is expected to produce double-digit revenue growth and double-digit margins, a “double-double,” Schmitt said, and a level the segment reached in March.
He said the company’s consolidated operations would produce nearly a double-double in the second quarter, which is a jump from the 6.3% operating margin produced in the first quarter. The goal is to beat the recent high of $ 164 million in earnings before interest, taxes, depreciation and amortization set in 2018.
First Quarter Results
The first quarter result included 20 cents per share of cybersecurity and shareholder engagement expenses, following a cyberattack at the end of 2020 and one proxy battle with an activist investor. Harsh winter conditions were also reported as an impact of 6 cents per share in the quarter.
Accelerated freight revenue increased 19.9% year over year to $ 304 million, tonnage jumped 14.3% and revenue per cwt without fuel surcharges was 3.3% higher. The division recorded a margin improvement of 210 basis points with an operating margin of 8.1%.
Transportation costs purchased as a percentage of revenue increased 170 basis points, but all other spending lines fell, including wages, salaries and benefits, which fell 160 basis points.
Intermodal revenues increased 11.5% year over year to $ 59 million, as dumpster shipments increased 9% and revenues per shipment remained stable. The division’s operating margin improved by 60 bps to 7.7%.
Table: Main performance indicators of Forward
Image from Pixabay