The trick with the trucking business is that you're never in control. You can't control the price of fuel, you can't control the availability of drivers, and you certainly can't control the volume of freight available to be shipped. Put simply, if people don't have goods for you to ship, you don't have much to do.
Although trucking had a good year in 2004, conditions may have softened in the first quarter of 2005.
U.S. Xpress (NASDAQ:XPRSA) lowered its guidance for the March quarter, citing a combination of higher fuel costs, difficulties in hiring drivers, and a worse-than-expected seasonal downturn in shipping demand. This follows a similar sort of warning from Covenant Transport (NASDAQ:CVTI) about a week ago.
Tonnage information from the American Trucking Association isn't exactly helping, either. It reported a 2% decline in February, and a spokesman acknowledged that the group expects decelerating growth throughout the year -- prompted mostly by the impact of high energy prices on the economy.
Going back to U.S. Xpress, management now expects a loss of $0.11 to $0.14 per share for the first quarter versus a profit of $0.06 in the prior year's first quarter. Interestingly, revenue is still expected to be positive, with the Q1 number pegged at $270 million, versus $234.6 million a year ago.
Looking at the cost side of the equation, management estimates that unrecouped fuel costs will take $0.06 a share out of results. On the driver side, despite a 20% hike in driver pay, the company is seeing a 2% decline in average seated tractors simply because it can't find enough trained people to put in them.
What does all this mean?
It's tempting to say that this is the beginning of the end, especially since analysts will invoke the ghost of the 1995 trucking market decline, which followed a strong year in 1994. On the flip side, Yellow Roadway (NASDAQ:YELL) preannounced a good quarter, and it appears that the basic supply-demand equation for trucking is still favorable for the industry.
What should investors do?
When times get dicey, it's usually not a bad idea to stick to the highest-quality names in the sector. For trucking, that means companies such as Arkansas Best (NASDAQ:ABFS). In the case of Arkansas Best in particular, the company's unionized driving force should give it some protection from the driver shortage that seems to be hurting other haulers.
All the same, trucking is still a cyclical industry, and high fuel prices and low shipping demand (if demand is, in fact, weakening across the market) will hurt even the best shippers.
Accordingly, investors must make peace with the idea that they will probably have to sell their trucking stocks someday. Whether that day should be today or not, I don't know. What I do know, though, is that I'm going to be paying a little closer attention to the sector. Interested shareholders should do likewise.
For more on the big rigs, try these Foolish takes:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
