In This Article:
Werner Enterprises WERN is facing significant freight market challenges. Escalating operating expenses are adversely affecting the company’s bottom line, making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
WERN: Key Risks to Watch
Southward Earnings Estimate Revision:The Zacks Consensus Estimate for current-year earnings has moved 2.9% south in the past 60 days. For the next year, the consensus mark for earnings has been revised 12.9% downward in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Dim Price Performance: The company’s price trend reveals that its shares have lost 6.5% over the past year against the industry’s 16.9% decline.
Image Source: Zacks Investment Research
Unimpressive Earnings Surprise History: WERN has a discouraging earnings surprise history, having missed the Zacks Consensus Estimate in each of the trailing four quarters. The average miss is 29.8%.
Weak Zacks Rank: WERN currently carries a Zacks Rank #5 (Strong Sell).
Bearish Industry Rank: The industry to which WERN belongs currently has a Zacks Industry Rank of 219 (out of 242). Such an unfavorable rank places it in the bottom 7% of Zacks industries.Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Reckoning the industry’s performance becomes imperative.
Headwinds: Freight conditions remain challenging, with further tightening toward the end due to supply chain disruptions caused by hurricanes. This exacerbated supply-chain delays and reduced the availability of shipping capacity, impacting freight rates and logistics.
In the third quarter of 2024, total revenues decreased $72.0 million compared to the same period last year. This decline was primarily due to a 9% year-over-year reduction in Truckload Transportation Services (TTS) revenues and a 10% year-over-year decrease in Logistics revenues. A key factor in the TTS revenue drop was a $20.0 million decline in fuel surcharge revenues. Excluding the impact of trucking fuel surcharges, consolidated total revenues decreased 7% year over year for the quarter.
Moreover, despite a slight decrease, operating expenses remain elevated, continuing to pressure WERN's bottom line and financial stability. The rise in operating expenses was driven by higher labor and fuel costs. In the third quarter of 2024, labor costs, which include salaries and benefits, accounted for 34.6% of total operating expenses, totaling $258.3 million. Fuel costs were also significant, reaching $64.8 million. While there has been a reduction in operating expenses, they remain at a level that continues to challenge profitability.