Werner Enterprises, Inc. (WERN) Slides on Lower Guidance, Analyst Downgrades
Shares of Omaha, Nebraska, based Werner Enterprises, Inc. (WERN) fell on Tuesday, against the backdrop of a marginally higher day in stocks overall. Werner's stock was down 9.60%, falling $2.37 per share, to close at $22.31, on volume of 6,337,953 shares. The company announced lower than expected earnings for the second quarter of this year, which resulted in downgrades in both the company's rating and its target share price by several major analysts.
On Tuesday morning, Werner's stock was downgraded by analysts at JPMorgan. They lowered the rating from "overweight" to "neutral". In addition, the target price for the stock was lowered to $23 from $30. Deutsche Bank also lowered its stock price target on Werner, cutting it to $22 from $29. Bank of America lowered its rating of Werner from "neutral" to "underperform", and lowered the stock target price to $22 from $29. Likewise, Credit Suisse cut its stock price target to $21 from $26.
The downgrade came on the heels of Werner's second-quarter 2016 earnings expectations announcement. The company announced that it expects earnings per diluted share to be in the range of between $0.21 and $0.25, for the quarter ending June 30, 2016. The expected earnings reflect a pretax gain of $3.4 million ($0.03 per share) on the sale of real estate. The earnings estimate is well below the second quarter consensus of $0.39 to $0.40 per share that analysts had been expecting. It is also as much as 44% below the second quarter 2015 results.
The company has cited factors negatively affecting earnings owing to a sluggish freight market that is causing a deceleration in the rate per total mile trends, as a result of 2016 customer rate negotiations as well as weak spot market rates, lower miles per truck (see article below) and increased empty miles. They also cited the increased cost of driver rates, which were implemented earlier this year, as well as independent contractor per mile increases late last year. The company has also cited a soft used truck market as an additional factor.
Werner is hardly alone in its earnings drought. Downward pressure is affecting other major competitors in the trucking industry.
"We believe this will overhang the Truckload sector, and potentially the entire Transport sector, into earnings," wrote Bank of America/Merrill Lynch analyst Ken Hoexter. "The soft retail market continues to overhang the transports, with Intermodal volumes down 7 percent QTD year-over-year at the rails, and truckers not seeing benefits from share gains..."
In the face of lower-than-expected earnings, Werner plans to reduce the average age of its truck fleet by 1.5 years by the end of 2016. However, the company does not plan to expand its truck fleet "until such time as its freight and rate markets show meaningful improvement".
Other WERN NewsFreight Market Bracing for Summer Slump
This is at least part of Werner's earnings issue.
Freight Rates Push Lower as Truck Capacity Outweighs Demand
Yet another issue confronting Werner.
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