Transportation stocks took it on the chin following the Trump administration’s announcement of widespread tariffs after the market closed Wednesday. Less-than-truckload stocks fared the worst in the two trading sessions after the Liberation Day holiday, as investors who entered the year hopeful for a positive inflection in the industrial complex appear to have left it for the time being.
Less-than-truckload stocks fell 18% over the two-day period and are off 33% year to date (both on an unweighted basis). (The outperformance of Old Dominion Freight Line (NASDAQ: ODFL) relative to the rest of the group has minimized the impact on the weighted average, as it comprises 60% of the group’s market capitalization).
LTLs are among the worst-performing industrials this year, as earnings expectations and valuation multiples are being reset.
The sector was a pandemic and post-pandemic darling, fetching record valuations at times, given its exposure to manufacturing and its role in a massive inventory restocking. However, an extended industrial recession along with several carriers acquiring terminals from the demise of Yellow Corp. (OTC: YELLQ), plus other organic additions, has left many LTL networks at record or near-record latent capacity. That has LTL bears calling for an unraveling of the industry’s favorable pricing dynamics.
Additionally, a March report stating that Amazon (NASDAQ: AMZN) could become a more significant LTL player has weighed on the stocks.
The first-quarter LTL earnings season, which begins April 23 when Old Dominion reports, may leave onlookers with more questions than answers, as a full-blown trade war now looms over an LTL industry already depressed by demand.
Early March intraquarter updates provided no respite from dour volume trends other than to show that a weather-marred January likely marked the worst of the tonnage declines (on a two-year comparison). Channel checks pointing to continued uncertainty around trade policy, weighing on capital investment and domestic manufacturing, has led analysts to further lower numbers.
Susquehanna Financial Group’s Bascome Majors told clients last week that “chaotic policy and macro backdrop of the last six weeks have only amplified our fears into this key spring and early summer period for the industry.”
He lowered first-quarter earnings per share estimates for core LTL carriers by 2% to 7%. Full-year 2025 numbers were cut by mid- to high-single-digit percentages with the changes resulting in mid- to high-single-percentage flow-through impacts to 2026 EPS estimates. His estimates are roughly 10% to 20% below consensus for 2025, and 5% to 20% below 2026 consensus.
FedEx’s (NYSE: FDX) LTL unit, FedEx Freight, also provided mediocre results for its fiscal quarter ended Feb. 28. Revenue was off 5.3% year over year, as tonnage fell 7.6% and revenue per hundredweight, or yield, increased just 2.2%.
The segment recorded an operating ratio of 87.5% (inverse of the operating margin), 300 basis points worse y/y.
Approximately 90% of its top line is linked to business-to-business trade and more tied to the impact of tariffs. The bright spot, however, was that the volume erosion at the country’s largest LTL carrier appears to have bottomed during its second fiscal quarter ended November 30. When tonnage declined 11.3% y/y (The two-year compilation bottomed in the quarter ended May 31, 2024).
FedEx said the y/y decline in revenue for its current fiscal quarter (ended May 31) is expected to be less severe.
The manufacturing purchasing managers’ index pointed to slight growth (a reading above 50) during the first two months of the year after a 26-month recession. However, trends slowed in February when the business outlook began to change and the March reading of 49 has the dataset in contraction territory. Importantly, the new orders subindex came in at 45.2 (after readings of 55.1 and 48.6 in January and February, respectively), a less than stellar signal for short-term demand.
The Tuesday report cited new tariffs and uncertainty about future rates as the main detractors.
The prices subindex rose again, more than 7 percentage points from February to 69.4, as many industries are already seeing the inflationary impact of the new levies. (Changes in PMI data generally precede LTL volume inflections by three to four months. Industry-related shipments account for roughly two-thirds of the freight mix for some carriers).
Other analyst reports said recent conversations with industry participants combined with other data points indicate that the demand headwinds did not abate in March, the seasonally strongest month of the first quarter. The LTL industry has lost some heavier weighted shipments to the truckload market, as rates in that market remain largely depressed. The LTL space likely won’t recapture that freight until there is a material inflection in the spot TL market.
Additionally, lower fuel surcharge revenue (diesel prices fell 9% y/y in the quarter) is weighing on yields, which remain positive, excluding fuel.
The fuel recovery mechanisms for LTL carriers are significantly accretive to margins when prices at the pump increase.
Operators have been successful capturing annual contractual rate increases in the mid-single-digit range, but after multiple quarters of earnings, the redistribution of numerous terminals that need to generate returns sooner rather than later, and a backdrop of still soft demand, it will be interesting to see how the industry’s “price discipline” mantra holds throughout the year.
“We remain steadfast in our belief that LTL earnings risk has far more to do with volume than pricing risk (more analogous to rail than truckload), as we continue to believe pricing discipline will still hold in an extended period of demand weakness and overcapacity,” said Majors.
TD Cowen cuts estimates on the Montreal-based TL, LTL, and logistics conglomerate TFI International (NYSE: TFII), citing margin risk at the LTL subsidiary Tforce Freight, among other concerns. On a consolidated basis, TFI’s businesses are approximately 80% exposed to the industrial complex and are feeling tariff pressure, analyst Jason Seidel said in a March 28 note. That exposure extends to its specialized TL segment, which includes the acquisition of flatbed carrier Daseke.
Seidel lowered his first-quarter estimate by 9% and his full-year 2025 number by 3% (both were below consensus at the time). The 2026 estimate was cut 5% and remains above consensus. He also warned that the company’s full-year LTL OR target of 93% to 95% could be at risk. He is forecasting a 99% OR at the unit during the first quarter.
TFI chief Alain Bédard was frank with investors on a February fourth-quarter call that his U.S. LTL platform bled volume density and broke effectively. He pointed to a negative flywheel of poor service leading to soft volumes (poor density) leading to poor pricing, and outlined several cost and service improvement initiatives around maintenance, linehaul, routing, and billing.
Bédard also said TFI was unlikely to engage in any “big ticket M&A” during the year, implying his timeline for acquiring a large U.S. LTL carrier has now extended to late 2015.
The majors lowered their TFI estimates by 12%, 19%, and 13% for the first quarter, full-year 2025, and full-year 2026, respectively.
TFI is the second-worst performing trucking stock this year (down 41%) given its LTL problems. Forward Air (NASDAQ: FWRD) is the worst-performing stock (down 59%) as investors await the results of a strategic review following a controversial merger with Omni Logistics.
U.S. Class I railroad stocks
Also dependent on the industrial sector were outside the 10% on average in the two sessions after Liberation Day.
The severity of the setback in transport could cause investors to return sooner rather than later, especially given the administration’s focus on again and off again with previous tariffs.
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