Forward Air will reach EPS 2023 target one year ahead of schedule

Forward Air management said Thursday that March was the best month in company history, with its LTL segment experiencing three of the highest tonnage weeks on record. The comments came during its first quarter call, which highlighted the progress the light trucking company has made in moving from its low-cost light shipments to heavier loads. Efforts have been made to improve density and yields.

Forward posted record revenue, operating profit and earnings per share during the first quarter and announced that it expects to exceed these results in terms of turnover and profit during the second quarter. . EPS’ future goals have also been advanced as essential business elements – trade shows, conferences and concerts – come back online.

First-quarter EPS of $1.57 was well above management’s initial guidance of $1.15-$1.19. First-quarter operating profit and EPS are not adjusted for any one-time items, but are compared to prior-year results, which excluded costs associated with a cyberattack and activist shareholder activities.

Consolidated revenue of $467 million increased 29% year-over-year and beat forecast growth of 18% to 22%.

“During the first few weeks of the second quarter, we saw continued strength and believe we will see similar strong performance in the second quarter,” Tom Schmitt, chairman and CEO, said in a press release. “The momentum is expected to continue as more cruise lines, conferences and trade shows return.”

Before (NASDAQ: FWRD) released second-quarter guidance forecasting revenue growth of between 18% and 22% with EPS ranging from $1.59 to $1.63. The outlook implies revenue of $505 million, which was slightly higher than the consensus estimate of $498 million provided by Seeking Alpha at press time. The expected EPS range brackets the consensus estimate of $1.62.

Management said it’s “optimistic” the company can reach the bottom of its previously published 2023 financial target (EPS $6.30 to $6.70) in 2022. It’s also confident the high end of the range can be reached in 2023 without the benefit of “any major acquisitions.” The previous guide depended on transaction flow and oversized terminal additions.

Schmitt also indicated that there could be other benefits to improved advice. “Everything we do would tell me: the momentum is still there, we like what we see, more importantly, we like what our teams are doing and there are benefits to what we offer.”

He said the company was more successful in loosening up contracts because it could make more use of its mostly dedicated independent contractors instead of relying on true third-party capacity. Everything from service and claims ratios to cost profile improves with the use of regular drivers.

Freight shipments related to in-person events only accounted for about $40 million in revenue in 2021. That figure could rise to $140 million in 2022. Forward also expects to see continued success selling directly to smaller and medium shippers. In the past it mainly worked through freight forwarders and 3PLs, which it will continue to do, but blending into more direct business with SMEs is very profitable. Removing the middleman can double margins to around 30%.

“The profitability of small and medium-sized businesses is enormous. The profitability of the event business is huge,” Schmitt said on the call.

SMB sales currently represent only about $20 million in revenue, but are expected to increase to $100 million within one to three years. The company is still focused on what it estimates to be a $10 billion high-end LTL freight market, which is comprised of high-value, heavier cargo requiring expedited “precision execution.” Management estimates that SMEs represent 30% of this subset.

First Quarter Highlights

Forward’s expedited segment, which includes LTL, FTL and Last Mile, saw year-over-year revenue growth of 24% to $377 million. LTL offering led the way (+36%) with TL (+7%) and last mile (+6%) making more modest contributions.

Freight swapping to heavier loads caused shipments per day to drop 15% year-over-year in the quarter, but daily tonnage was up 9%. The difference was a 27% increase in weight per shipment.

Tonnage increased (year-on-year) by 5.5% in January, 16.5% in February and 5.5% in March. So far in April, tonnage has increased by a similar amount to that recorded in March. The February competition benefited from severe winter storms last year. Additionally, the company hadn’t started the transition from light, non-palletized freight until the end of 2021, which was a tailwind for all monthly comps.

Accelerated margin increased 460 basis points year-on-year to 12.7%. A 12% increase in yields, or revenue per hundredweight (excluding fuel), paved the way for improved margin performance. All of the segment’s expense brackets were lower year-over-year as a percentage of revenue, with the exception of fuel, which was nearly flat. The two largest spending lines were the biggest declines. Purchased transportation expenses decreased 90 basis points, with salaries, wages and benefits decreasing 220 basis points.

Management said LTL margin was 19.5% in the quarter (80.5% operating ratio) and expects to see an OR in the 70s at some point this year .

Intermodal revenue increased 55% year over year to $90 million. Revenue per shipment increased 61%, with operating margin also improving by 460 basis points to 12.3%. Purchased transportation expenses (-770 basis points) and compensation expenses (-420 basis points) fell the most as a percentage of revenue.

Table: Key Forward Performance Indicators

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