Saia Earnings: LTL Demand Challenged, but Top Carriers Likely To Grab Share from Yellow

Less-than-truckload specialist Saia’s SAIA top line fell 7% year over year, but was in line with our expectations as initial freight diversions from floundering LTL peer Yellow helped offset greater-than-expected deterioration in core LTL-industry demand. Recall Yellow is facing a potential bankruptcy and customers have been diverting freight to other carriers in recent weeks.

Tonnage fell 2% year over year, while total yield fell 5% on now-falling fuel surcharges, though yield excluding fuel was up 3% as core pricing remains positive. In terms of sluggish demand, LTL carriers are still grappling with retailer destocking and a pullback among U.S. industrial end markets, though these factors are not a surprise and we’ve been baking in a pullback in 2023

On the other hand, Saia’s shipments have seen a meaningful uptick over the past week or so. It sounds like some of this is coming from freight diversions from Yellow—a similar trend we heard from peer Old Dominion. The magnitude of LTL business Saia could win (or would be willing to accept) is uncertain, but we suspect it will gain a meaningful chunk of shipments that fit its acceptable yield profile as Yellow continues to bleed market share. The risk would be that Saia chases low yielding freight, but considering its solid execution progress over the years, we believe management will remain disciplined. Also, Saia has been investing in terminal expansion in recent years, which should provide sufficient capacity to take on attractive new freight opportunities.

Overall, we expect to temper our forecast tonnage declines for 2023 and boost the volume recovery we’ve been baking in for 2024. Share gains and lane-density benefits also give us greater confidence in a solid margin rebound next year. As a result, we expect to boost our fair value estimate by 6%-10%. That said, the shares still look rich relative to our longer-term free cash flow growth assumptions, which is a common theme for peers Old Dominion and XPO as well.