Saia Earnings: Share Gains From Failed Yellow Offset Otherwise Soft Underlying Demand

Less-than-truckload specialist Saia’s SAIA top-line trend swung positive year over year, rising 6%, much better than the 7% decline last quarter thanks to the freight diversions from bankrupt peer Yellow. We’ve already been baking in a meaningful sequential uptick in volume and pricing, but revenue modestly beat our forecast.

Tonnage rose 5% and was up 3% sequentially (ahead of normal seasonality). Underlying freight demand across the trucking landscape is still facing muted retailer restocking and sluggish industrial end markets, but Yellow diversions have provided a strong offset for many carriers. We also suspect Saia and its high-quality peers like Old Dominion will see incremental share gains in the quarters ahead from lower-quality providers that have taken on too much Yellow freight at the cost of service levels. Service performance (including on-time deliveries and low cargo claims) is paramount for shippers using the LTL mode.

Core yield (excluding fuel) jumped 8%—ahead of the 3% average increase posted during the first half of the year—driven by solid rate discipline and the fact that Yellow’s failure removed almost 10% of LTL industry capacity, thus tightening up the supply/demand equation and boosting most carriers’ pricing power./p>

We do not expect to materially alter our DCF-derived $265 fair value estimate on account of third-quarter results. Note that the shares have pulled back in recent weeks, but Saia (along with peers Old Dominion and XPO) still looks modestly rich relative to our longer-term free cash flow growth assumptions. Recall that LTL stocks surged throughout the summer months on a wave of optimism over pricing and volume benefits from Yellow’s bankruptcy. In our view, Saia’s stock has been priced for perfection.