Slower Growth at Yellow Roadway

As I've mentioned recently, the state of the trucking market is something of an individual experience. Some companies are having troubles while others are all right. Though I wouldn't go so far as to say that large less-than-truckload carrier Yellow Roadway (NASDAQ:YELL) is troubled, it does look like expectations put the cart a bit too far ahead of the horse.

Revenue growth in the third quarter was a robust-looking 41%, though much of that came from the acquisition of USF. On an organic basis, revenue growth was more in the 7% range -- in line with smaller competitor Arkansas Best (NASDAQ:ABFS) but behind faster-growing would-be rival Old Dominion (NASDAQ:ODFL).

On a consolidated as-reported basis, the company's operating ratio worsened just slightly in the quarter as improvements at Yellow Transportation and Roadway Express were overwhelmed by higher costs at the YRC Regional business. All the same, reported operating income rose 30%, though free cash flow dropped pretty sharply on a year-to-date basis.

Underlying results in the segments suggest to me that business is still pretty good, but that the pace of growth has slowed a bit. Revenue yields (excluding fuel surcharges) were up in the mid-1% range, while comparable tonnage was pretty flat. Management said on its call that volume should be up in the fourth quarter and that business looks pretty brisk through Thanksgiving. Nevertheless, management's guidance for fourth-quarter earnings suggests prior estimates might have been just a hair too high.

Even if there weren't worries about fuel costs and overall economic strength, trucking is still a cyclical and capital-intensive business where it is hard to establish a lasting competitive advantage. Yellow's past financials suggest that it is better-run than average, but I'd probably still prefer Old Dominion if I were to make a trucking investment today.

For more Takes from the open road:

• Arkansas Bests the Street
• Master of Its Dominion
• On Yellow Road to Acquisition

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).