USA Truck (USAK) – In James Reed We Trust
With over 2,000 driving team members, this truckload carrier transports commodities throughout the continental United States (primarily the eastern half) and into and out of portions of Canada. It also transports general commodities into and out of Mexico by allowing through-trailer service from its terminal in Laredo, Texas. In addition to truckload and dedicated freight service offerings, the company provides freight brokerage and rail intermodal service offerings through its Strategic Capacity Solutions (SCS) segment.
Speaking at the recent Stifel Transportation & Logistics Conference, here is a brief company overview coupled with its revenue breakdown:
Unfortunately, the company has seen its fair share of struggles. On January 30th, the company announced that James Reed, the CFO at the time, would be named President and CEO effective immediately as Randy Rogers left to pursue other opportunities. Days later, the company would announce its Q4 earnings that did not meet expectations:
-EPS of -$0.25 vs $0.04 estimate – Miss
-Revenue of $103.1M vs $108.3M estimate – Miss
-Total Freight Revenue down 13.6%
-Lowered 2017 and 2018 EPS Estimates
-Stock closed down 4.9%
After these numbers were released, newly-appointed CEO James Reed said “Our consolidated financial performance was unacceptable.” He would then go on to make the following comments:
“USA Truck’s strategy is sound, while we have real work to do to execute and return to levels of performance we expect.”
“The performance of our Trucking segment has massive room for improvement. Intense focus on improving business fundamentals, key operating metrics and employee engagement are expected to drive this business to acceptable performance levels over the long run. In the shorter term, we believe a relentless focus on execution will make this segment of our business accretive to earnings in 2017. The two most immediate opportunities are seating a higher percentage of our tractor fleet with safe and productive drivers, and capitalizing on market conditions to improve base revenue yield. We believe there are latent opportunities in our yield today given passive management of this lever in the recent past and we expect our yield improvement process to stretch well beyond 2017.”
The following day, Avondale Partners upgraded the stock to Market Perform from Underperform. Analyst Donald Broughton said shares have fallen below stated tangible book and “believes the new CEO is capable of turning the company around and said a profitable quarter is possible.”
Then, beginning on February 9th, just 2 days after its earnings miss, insiders started to accumulate shares of USAK (shown below). I can only assume that this is a gesture of faith and confidence that they have in the new CEO.
M&A
While this has nothing to do with the CEO, it should be noted that this past Monday, Stephens analyst Brad Delco was out with a research note arguing that consolidation within the truckload space “will occur,” with Celadon (CGI) and USA Truck (USAK) being the most likely targets. Mr. Delco believes M&A “could become a major theme throughout 2H17 and into 2018,” explaining that seemingly improving fundamentals as well as expected capacity tightening brought on by regulations around new electronic logging devices “set the stage” for near- to mid-term consolidation. Here is the excerpt from the Catalyst tab from Jaguar Pro Trader Tools:
There is very little sell-side coverage on this name. Only Avondale Partners, Stifel, Stephens, and Cowen provide coverage. Besides the Avondale upgrade on February 8th, one has to go back to November 7th when Stifel upgraded the stock from Sell to Hold and kept a $9 price target.
Looking at the company’s Investor Relations page, there are no near-term catalysts to report. It looks like traders and investors will have to wait until early May for Q1 earnings.
Unfortunately, this stock does not provide options.
