Benchmark analyst Christopher Kuhn reiterates Schneider National Inc (NYSE:SNDR) with a Buy and a $34 price target. The analyst lowered estimates for Schneider National (SNDR) ahead of its 2Q 2023 report in a few weeks. 

The lack of a seasonal uptick in 2Q has led to lower Intermodal volumes driven by negative import and export Twenty Equipment Unit (TEU) growth. 

The intermodal price and load will likely be under pressure this year, given lower truckload rates which will impact margins. 

Truckload volumes and rates ex-fuel were also lower in 2Q, as was evidenced in Knight-Swift Transportation Holdings Inc's (NYSE: KNX) (NR) pre-release yesterday.

So, Kuhn also expects the Truckload segment to see volume, price, and margin pressure, especially in its Network business, while the Dedicated business is relatively stable. 

SNDR's business mix has shifted from truckload to intermodal and dedicated, which are industries the analyst favored in the long term and provide a more balanced network and some stability in a downturn.

The company plans to double its intermodal business by 2030, and the analyst thinks its new partnership with Union Pacific Corp (NYSE: UNP), pent-up demand for intermodal, and improving rail service will help them move toward that goal. But Kuhn saw muted Intermodal results in the short term. 

The analyst reduced his 2Q 2023, FY 2023, and 2024 EPS estimates due to lower Intermodal, Truckload, and Logistics revenue and margins.

He lowered 2Q 2023 EPS estimate to $.43 from $.47. 

The analyst lowered his FY 2023 EPS estimate to $1.95 (previously $2.12), now below SNDR's guidance range of $2.00 – $2.20 due to a lack of visibility on a seasonal uptick in the back half. 

However, there is an encouraging data point from the Port of LA. Kuhn reduced his FY 2024 estimate to $2.16 from $2.34. 

Data from the Ports of LA/Long Beach and New York/New Jersey show continued declines in import and export TEU's in 2023, negatively impacting intermodal volumes. 

TEU volumes out of the Ports of Los Angeles and New York/New Jersey for the second quarter of 2023 are trending down 20% y-o-y. 

However, loaded import volumes at the Port of LA have been improving sequentially since March but will likely dip down in June due to labor issues. 

As a result of negative TEU growth, total N.A. rail intermodal volume growth in 2Q 2023 is down 12% y-o-y but down only 6% for SNDR's leading rail partner UNP due to SNDR's incremental intermodal volume. 

The intermodal price per load will likely see pressure in FY 2023 vs. 2022 due to declining TL rates as contracts reprice lower, impacting 2Q and 3Q margins, given that the bulk of the bid season will be over. One encouraging sign out of the Port of LA's June results is that the number of container ships en route to the Port has increased from May to June, showing the potential for an uptick in seasonal products and a peak season.

Lower spot rates, down 17% y-o-y ex-fuel, are also likely to pressure SNDR's Network contract rates as they renew at lower prices. However, SNDR has not been committing much capacity at current contract rates, so they can take advantage of a potential inflection in spot rates later in the year, which could help margins in 4Q. 

The valuation is attractive with a P/E of 13x the analyst's revised 2024 EPS estimate which is about the average levels, and thinks the P/E could move higher as earnings trough in 2Q and 3Q. 

Price Action: SNDR shares traded lower by 1.73% at $27.55 on the last check Thursday.