Expect Werner's Low Guidance To Drive Other Trucking Names Lower, Barclays Says

Werner Enterprises, Inc. WERN surprised the market on June 20 by issuing its 2Q earnings guidance almost 50 percent below the current consensus expectations.

Barclays’ Brandon R. Oglenski maintains an Equal Weight rating on the company, while lowering the price target from $28 to $23.

Guidance Miss

“If guidance is correct, this will be the first time in the past 20 years that 2Q results have come in weaker than 1Q, which historically is challenged by higher winter operating costs,” Oglenski mentioned.

The analyst also pointed out that the guidance reflects the meaningful challenges to achieving increased freight pricing in a “slow-to-no-growth” U.S. market, as well as truck supply growth driven by elevated capital investment over the past two years.

Related Link: Deutsche Bank Downgrades Werner Enterprises To Hold

“Specific to Werner, the company's recent decisions to increase driver wages and pursue a significant fleet expansion/re-fleeting plan of nearly $500 million are likely magnifying the earnings impact from negative market fundamentals,” Oglenski explained.

The analyst expects other truckload and freight related names to react negatively to Werner’s announcement, given the implications regarding the pace of deceleration in fundamentals.

Reasons For Miss

According the Barclays report, “Clearly WERN is facing some company-specific cost challenges, but the lack of freight growth and apparently abundant trucking capacity are challenging spot rates into the back half of 2016, when most were expecting comps to 'ease.'”

Management attributed the guidance miss to higher spot market exposure in a weak rate environment, as Werner reduces lower contracted “bid” offers from customers.

However, Oglenski also noted that management expects contracted rates to improve due to lowered supply either later in 2016 or in early 2017.

At Time Of Writing...

Werner was down 7.82 percent on the day within the first two trading hours on Tuesday, trading at $22.74.