Forward Air Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Forward Air is an asset-light freight and logistics company with Expedited Freight and Intermodal segments. Unless noted, amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $402.2 | $515.2 | -21.9% |
| Operating income | $30.2 | $75.5 | -60.0% |
| Operating margin | 7.5% | 14.7% | -7.2 percentage points |
| Net income | $20.0 | $55.4 | -64.0% |
| Diluted EPS | $0.76 | $2.04 |
For the first half, revenue was $829.2 million (-15.6%), operating income $80.7 million (-39.3%), and net income $56.3 million (-42.6%). Six-month operating margin was 9.7%, versus 13.5% a year earlier; diluted EPS was $2.13 versus $3.61.
- Segment trends: Q2 Expedited Freight revenue fell 17.3% to $338.0 million and operating income declined 51.0% to $30.9 million; its operating margin was 9.2%, down from 15.4%. Intermodal revenue declined 39.6% to $64.3 million and operating income fell 71.7% to $4.3 million; margin was 6.7%, down from 14.3%.
- Operating drivers: Expedited Freight network tonnage fell 7.7%, shipments 12.4%, and revenue per hundredweight excluding fuel 7.0%. Intermodal drayage shipments decreased 28.2% and revenue per shipment 16.9% in Q2.
- Lower purchased transportation and fuel costs partly offset weaker revenue. However, operating leases, depreciation and amortization, and insurance costs increased, pressuring margins.
Cash flow, debt and liquidity
- First-half operating cash flow was $129.6 million, compared with $112.8 million in 2022. Investing cash outflow was $71.1 million, including $56.7 million for the Land Air acquisition and $17.6 million of capital expenditures. Financing cash outflow was $86.0 million, including $79.8 million of share repurchases and $12.6 million of dividends.
- Cash declined to $18.3 million at June 30 from $45.8 million at year-end 2022. Current assets were $215.8 million and current liabilities $169.2 million.
- Credit-facility borrowings were $122.8 million; finance lease obligations totaled $37.4 million. The company reported $265.2 million of available borrowing capacity and was in compliance with facility covenants.
- Six-month dividends were $0.48 per share. The company repurchased 759,000 shares for $79.8 million, averaging $105.09 per share.
Outlook, commentary and risks
- Management said weak freight demand, falling transportation rates, elevated shipper inventories and increased market capacity reduced customer shipment volumes. It expected these trends to continue into Q3 2023. No numerical earnings or revenue guidance is provided in the filing.
- Management stated that available cash, operating cash flow and the credit facility were expected to fund working capital, capital expenditures and debt service for the foreseeable future. This is a forward-looking statement, not a guarantee.
- Key exposures include economic and freight-cycle weakness, pricing pressure, fuel-price and surcharge volatility, variable-rate borrowing costs, customer credit risk, capacity and labor availability, acquisition integration, cybersecurity and information-system risks, and vehicle liability, workers’ compensation and other insurance claims.
- Q2 corporate/other operations included non-recurring strategic-initiative professional fees and changes in insurance reserves. The filing also reports favorable historical vehicle-liability claim development. Management said existing reserves and pending litigation were not expected to have a material adverse effect, while noting estimates and outcomes could change.
- Land Air Express was acquired in January for a preliminary $56.6 million; its purchase-price allocation remained subject to final valuation. The annual goodwill impairment review as of June 30 found no impairment.
Important facts for investors to verify
- Whether shipment volumes, pricing and margins stabilize after the weak Q2 freight environment; monitor the stated Q3 demand outlook.
- Whether cost reductions can keep pace with revenue declines, particularly for insurance, leases, labor and depreciation.
- Cash generation and borrowing capacity after acquisition spending, substantial repurchases, dividends and higher variable interest rates.
- Land Air integration, final purchase-price allocation and the performance of acquired operations.
- Developments in self-insurance reserves, legal claims and credit-facility covenant compliance.