Analyst: Trucking industry will have to gear down

MarketWatch

SAN FRANCISCO — A bottom may be nearing for the U.S. trucking industry, but record-high diesel prices and severe weather across much of the country could mean more pain is on the way, according to a research note Tuesday from Credit Suisse.

Analyst Jason Seidl pared his first-quarter, full-year and 2009 earnings estimates for every trucking company that he covers, explaining that expectations for a rebound are premature.

“Indeed, unprecedented fuel prices, poor winter weather conditions and a barrage of broad-based negative economic indicators during the first quarter suggest that conditions could deteriorate further,” he said.

Diesel prices nationwide have soared to $4.02 a gallon, on average, up from $2.91 a gallon a year ago. The surging costs have led reeling independent truck drivers to stage protests by parking their rigs along crowded highways in states such as New Jersey and Florida.

Making matters worse during the quarter, powerful Pacific storms steadily blasted the West Coast, frigid temperatures rattled the East and heavy rainfall flooded the Midwest, making it increasingly difficult for truckers to reach their destinations.

Seidl is looking for these and other economic pressures to ease a bit in the latter part of 2008, but he warned that investors have already priced in a second-half recovery.

Shares of J.B. Hunt Transport Services and Knight Transportation, for instance, have garnered double-digit gains since the beginning of the year. Con-Way, Old Dominion Freight Line and SAIA have all rallied more than 20 percent.

“We believe that investor expectations may be somewhat premature, and thus, we wouldn’t be surprised to see the group pull back should [first-quarter] earnings and outlook commentary disappoint,” he said. “Moreover, if fuel stays at current levels, we may have to reign in our estimates for [second quarter] as well.”

Seidl maintained his market weight rating on the group and advised those seeking less-risky exposure to truckers to take a look at Con-Way and Old Dominion, while those looking for more volatility should consider Canada’s Vitran Corp.