Logistics is the backbone of any thriving economy, fueling its growth and success. However, recent earnings reports from major logistics providers paint a grim picture. Nonetheless, amidst the adversity, there is a glimmer of hope.
On Thursday, both railroad operator CSX (ticker: CSX) and trucker Knight-Swift Transportation (KNX) released their second-quarter financial results. Interestingly, their respective stocks moved in opposite directions on Friday, but their messages regarding the state of the economy remained consistent.
Knight-Swift reported earnings of 49 cents per share, falling slightly short of Wall Street’s expectation of 53 cents. In response, analysts lowered their earnings outlook. Notably, Baird analyst Garrett Holland commented, “Q2 results were very challenging,” highlighting the intense demand and rate pressure that hampered earnings more than anticipated. Knight-Swift now anticipates earning approximately $2.20 per share by 2023, significantly lower than the previous guidance of $3.45 per share. The decline in unit prices has occurred at a faster pace than initially projected.
Despite these disappointing numbers, Knight-Swift’s stock rose by 2.6% on Friday, a surprising turn of events compared to the slightly positive performance of the S&P 500 and Dow Jones Industrial Average.
While the situation may seem bleak at present, hope emerges. During a Thursday evening conference call, Knight-Swift’s management expressed that the process of inventory destocking, which has been reducing the need for truckers to deliver new products to stores, is nearing its “final stage.”
As we navigate these challenging times for logistics, it becomes apparent that while obstacles persist, so too does determination. With progress on the horizon and an unwavering commitment to the industry, a brighter future awaits.
Market Analysis: CSX and Union Pacific Stocks Show Promise
Baird’s Holland Remains Bullish on Union Pacific
In a recent report, Baird’s Holland expresses optimism for Union Pacific stock despite recent weaknesses in the spot market freight rates. He believes that the bottoming of these rates indicates an impending improvement in profitability when demand returns. With this in mind, Holland rates Union Pacific shares as a Buy, setting a price target of $65 for the stock.
CSX Faces Market Expectations
CSX, on the other hand, delivered a strong quarter, reporting adjusted earnings of 49 cents per share, which met Wall Street’s expectations. However, this did not prevent a 4.2% decline in the stock’s value.
Analyst Christian Wetherbee from Citi notes that CSX was anticipated to outperform in the second quarter. Following the earnings report, Wetherbee made slight adjustments, lowering his second-half earnings estimates by about 6%. Despite this adjustment, he remains optimistic about the company’s future prospects. Wetherbee believes that the U.S. rails are well-positioned to experience an inflection in earnings power by 2024, driven by a better balance of volume and costs, as well as solid pricing. He rates CSX shares as a Buy and sets a price target of $38 for the stock.
Rail Industry’s Positive Outlook
Although Union Pacific and CSX stocks had opposite trajectories on Friday, both companies and analysts foresee brighter times ahead with freight bottoming out in 2023. This news signals potential growth in the industry.
It is important to note that stock reactions do not always align with the broader economic landscape.