Saia, Inc from 31 January 2008
SAIA reports downside EPS. SAIA reported 4Q:07 EPS of USD 0.05 vs our USD 0.28 estimate and Cons USD 0.26. SAIA also benefited by USD 0.01/share from a lower tax rate. They were negatively impacted by about USD 0.04 related to “an employment matter” and benefited by an estimated USD 0.04 from net fuel impact. Rev, EBIT, and EPS changed y-o-y +11.2%, -68.9%, and -90.7% vs our expectations of +11.3, -21.8%, and -37.3%, respectively.
OR deterioration drives miss. SAIA’s OR deteriorated 410bp vs our expectation of 170bp of deterioration and 190bp in 3Q:07, resulting in EBIT down 69% y-o-y. The larger than expected deterioration was due to the weak pricing environment and several minor cost issues.
Yields ahead of expectations driven by fuel. SAIA’s yields (rev/cwt, gross of fuel) grew 6.1%, ahead of our 4.7% estimate which included a material increase in fuel surcharge. SAIA for the first time did not report yields net of fuel, but we estimate fuel surcharges accounted for almost 5pp of the gross yield growth and real pricing was likely flat to down considering 4% lower weight per shipment and a 4% increase in length of haul.
Tonnage below expectations. SAIA grew tonnage at 5.1% in 4Q:07, below our forecast of 6.5% and down from 8.9% in 3Q:07 as its acquisitions began to grandfather (the Connection closed 11/20/06). Tonnage declined 8% on a proforma basis in 4Q:07 and worsened throughout the qtr, but has improved to -4% in January.
Stock still has a lot of risk. SAIA is struggling with operating and cost issues as it continues to integrate two acquisitions made right into the downturn. We expect many of these issues to continue in the near term as competition in LTL pricing continues to increase in 2008 and we are sharply reducing our 08 and 09 EPS estimates. However, SAIA will likely benefit from potential capacity reduction by its competitors, especially in its core Southern region. For now BS is solid and mgmt has reduced C08 capex meaningfully.
INVESTMENT CONCLUSION: SAIA was up yesterday despite a materially weaker than expected report into the Fed interest rate cut and continued running for cover in the truck sector. SAIA was up 2.3% yesterday compared to our LTL Index excluding it up 3.3% and the S&P 500 down 0.5%. Year to date SAIA is up 2% compared to our LTL index excluding SAIA now up 17% and the S&P 500 down 8%.
We have reduced our C08 and C09 EPS estimates by 56% and 42%, respectively, from USD 1.45 and USD 1.55 to USD 0.63 and USD 0.90 (compared to prior Consensus USD 1.42 and USD 1.76). Based on our reduced forward estimates, SAIA is currently trading at 20.7x and 5.2x our forward year EPS and EV/EBITDA, respectively, compared to its average 1, 3 and 5 year averages of 10.4x, 11.5x and 12.0x, and 4.7x, 4.9x and 5.0x. SAIA’s balance sheet feels solid at this point ending the year with a debt ratio including off balance sheet leases of 48.8% compared to 51.6% at year end 2007. We now project SAIA will bottom with an EPS loss during 1Q:08; however we have little visibility to our estimates. SAIA remains rated Peer Perform.
