Analysts are raising earnings expectations for less-than-truckload carriers heading into the third-quarter earnings season. The move follows confirmation that several public carriers were successful onboarding freight put back into the market after Yellow closed its doors.

“We see more risk in anchoring to the past than looking optimistically toward LTL’s future,” said Susquehanna Financial Group analyst Bascome Majors in a research note to clients on Wednesday.

He raised earnings-per-share estimates for pure-play LTL carriers for the 2023 third quarter, full-year 2023 and full-year 2024.

Third-quarter estimates rose 17% for Saia (NASDAQ: SAIA), which has seen the biggest year-over-year (y/y) jump in shipments among public carriers following Yellow’s exit. Estimates for Old Dominion Freight Line (NASDAQ: ODFL) and XPO (NYSE: XPO) were raised by 5% and 6%, respectively.

Majors raised his 2024 estimates by 8% for Old Dominion, 9% for XPO and 16% for Saia. His 2024 earnings forecasts are now in line with or higher than current consensus estimates.

Majors cautioned that most of Yellow’s roughly 300 owned and leased terminals will become operational again as other carriers look to build out their networks. Some industry participants have suggested that the newly favorable pricing dynamics could be challenged as those sites come back online. However, that capacity will now likely be operated by a more price-disciplined carrier.

Yellow’s precarious financial condition kept it from making the investments in equipment, service centers and technology needed to effectively compete with other national carriers on service. That often resulted in lower account-level yields (due to frequent rate discounting) and inferior margins.

Private carrier Estes Express Lines’ $1.525 billion stalking horse bid for Yellow’s 174 owned terminals will allow it to have some control and protections regarding the sale process. A Nov. 28 auction deadline for those terminals has been set if needed.

“Given synergy opportunities, our base case has Yellow’s assets ending up in the hands of an incumbent LTL operator and not a startup carrier,” Majors said. “If we’re right, much but not all of that footprint ends up back in the LTL market over a multi-year period.”

Companies with large but not exclusive LTL exposure, like Forward Air (NASDAQ: FWRD) and TFI International (NYSE: TFII), saw reductions to EPS estimates.

Majors trimmed Forward’s 2024 estimate by 7% as the company is receiving pushback from some investors on its planned merger with Omni Logistics and as Majors expects it will incur “slightly higher than expected borrowing costs” to fund the deal. His 2024 forecast for TFI was lowered just 2% given general pressure on the truckload market.

Morgan Stanley (NYSE: MS) analyst Ravi Shanker raised third-quarter estimates for Old Dominion and XPO by 7% and Saia by 8% on Monday. He cut the EPS outlook for ArcBest (NASDAQ: ARCB) by 19%, but that was largely tied to the company’s asset-light business, which likely saw headwinds from higher purchased transportation costs during the quarter.

Shanker also said the recent LTL freight reshuffle could be unsettled.

A survey conducted by his firm of more than 300 shippers and 3PLs that worked with Yellow but were forced to change carriers when the company closed said they will again search for new capacity options. If true, the recent share wins at some carriers could be in jeopardy along with future earnings estimates.

“LTLs will continue to be pressed on signs of a rising tide post YELL and whether Phase 2 of the rotation is being a headwind or a tailwind,” Shanker said.

Looking forward, public carriers could see a modest lift to fourth-quarter results given a recent cyberattack at Estes, which has knocked computer systems and phone lines offline. The carrier is still picking up and delivering freight, but there may be some diversions to other carriers if the outage is prolonged.

Diesel fuel prices, which are up more than 20% since the third quarter began (down 15% y/y on average during the quarter), are also a catalyst to earnings. Less-than-truckload fuel surcharge programs are set on a sliding scale, with carriers capturing larger percentage increases the higher diesel prices climb.

“Simply put, Yellow’s departure takes the ‘pricing cracks’ structural bear case off the table for now, and that far-better-than-feared pricing floor gears the entire industry up for impressive operating leverage into 2025 as underlying industrial and retail volumes likely recover from their long post-pandemic retrenchment over the course of next year,” Majors said.

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