“At this time, macro leading demand indicators are becoming more constructive,” Stewart said. (Forward Air via LinkedIn)
Key Takeaways:
- Forward Air CEO Shawn Stewart said Aug. 5 tightening capacity and stronger indicators are driving a gradual freight recovery as the company reported second-quarter results.
- Stewart attributed improving market fundamentals to regulatory enforcement, carrier exits and stronger manufacturing data while revenue rose 8.8% despite a larger net loss.
- Forward said asset divestitures and a customer memorandum aim to reduce debt, streamline operations and retain at least half of affected revenue.
Forward Air Corp. CEO Shawn Stewart expressed optimism Aug. 5 that the tightening freight market is driving a gradual recovery as regulatory enforcement continues to reduce industry capacity.
The Department of Transportation has clamped down on unsafe and questionable drivers in a way that has hastened an ongoing decline in capacity. The effort has included stricter enforcement of non-domiciled commercial driver licenses and English-language proficiency standards. The crackdown comes amid a prolonged downcycle from an oversupply of capacity.
“Market fundamentals are improving as capacity continues to tighten, driven by regulatory enforcement and carrier exits,” Stewart said during a call with investors. “At this time, macro leading demand indicators are becoming more constructive.”
The ISM Manufacturing PMI Report increased 2.3 percentage points sequentially to 55.6% in July. This marked the fastest rate in more than four years and the seventh consecutive month of expansion. Stewart pointed to the manufacturing data as another sign that economic conditions are improving, alongside lean inventory levels, rising truckload spot rates and higher tender rejection rates.
“We believe these trends point toward a continual, gradual freight recovery,” Stewart said. “Although some macroeconomic uncertainties remain, particularly from the geopolitical tensions and diesel price volatility, which could weigh on industrial activity and delay demand recovery.”
While acknowledging that freight recoveries are rarely linear, Stewart said the company remains committed to its transformation and growth strategy. As part of that strategy, the company sold two smaller businesses within its legacy Omni Logistics segment.
“We are pleased to have successfully completed both of these transactions as part of our portfolio optimization,” Stewart said. “This does simplify our portfolio of services, allowing us to focus on the core of our future and have the added benefit of monetizing underperforming assets. The remaining targeted divestiture that we announced is the intermodal business.”
The sale of the non-core assets is expected to help reduce debt, streamline the organization and enhance shareholder value, Stewart said. He also highlighted efforts to preserve a portion of the business tied to the company’s largest customer as that customer diversifies its provider base. To that end, the companies signed a memorandum of understanding, Stewart said.
“Under the MOU, we expect to retain at least half of the approximately $250 million of revenue attributable to the customer for the fiscal year ending Dec. 31, 2025, with the potential of retaining an additional approximate 25%,” Stewart said. “For the services that are expected to be transitioned to other providers, that is anticipated to start later this year.”
The comments came as Forward reported second-quarter financial results. The Greeneville, Tenn.-based company posted a net loss of $245.9 million, or negative $6.33 a diluted share, compared with a loss of $20.3 million, negative 41 cents, a year earlier. Revenue increased 8.8% to $673 million from $618.8 million.
“We are beginning to see the fruits of our labor and results at the level I know we are capable of producing,” Stewart said. “The strong performance was led by the expedited freight segment, which reported its best operating revenue, best operating income, best reported [earnings before interest, taxes, depreciation, and amortization], and best margin since the beginning of 2024.”
Results by segment
- Expedited freight segment revenue increased 23.8% to $319.1 million from $257.7 million. Operating income increased 79% to $34.9 million from $19.5 million.
- Omni Logistics segment revenue increased 3.1% to $338.5 million from $328.3 million. Operating loss was $230 million, compared with a gain of $7.19 million.
- Intermodal segment revenue increased 1% to $59.7 million from $59.1 million. Operating income increased 38.2% to $6.1 million from $4.42 million.
Forward ranks No. 37 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 1 on the air/expedited carriers sector list. Forward/Omni ranks No. 33 on the TT Top 100 list of the largest logistics companies.