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Werner Hit by Used Truck Market Weakness Amid Cost Cuts


We recently issued an updated report on Werner Enterprises, Inc. WERN.

Werner’s cost-cutting measures to combat the sluggish freight scenario are appreciative. Additionally, the company is believed to be witnessing improved efficiency and higher productivity on the back of its software advancements. We are also impressed by the company's ability to generate free cash flow. Free cash flow worth $143 million was generated in 2019, up more than 100% year over year. The metric is expected to exceed $100 million in 2020 despite coronavirus woes.

The company focuses on investing in new trucks and trailers to improve its operational efficiency and reduce fuel costs. To this end, it aims at maintaining a relatively young fleet of trucks and trailers compared with the industry’s standard. As of Mar 31, 2020, the average age of its truck fleet was 2 years compared with 1.9 years at 2019 end.

However, owing to weakness in the used truck market, Werner expects 2020 truck sales to fall $42 million year over year. New truck purchases are also expected to be lower in 2020. The company has withdrawn its 2020 guidance for gains on sales of equipment due to weak demand in used truck market.

Moreover, cash and equivalents were 72 million for Werner at the end of the March quarter, less than the current debt figure of $75 million. This implies that the company does not have enough cash to meet its short-term debt obligations.

Zacks Rank & Key Picks

Werner carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Transportation sector are Scorpio Tankers Inc. STNG, Teekay Tankers Ltd. TNK and Nordic American Tankers Limited NAT. Scorpio Tankers and Teekay Tankers sport a Zacks Rank #1 (Strong Buy), while Nordic American Tankers carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for The Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.

The Teekay Tankers stock has seen the Zacks Consensus Estimate for current-year earnings being revised upward by 53.4% in the past 60 days.

The Zacks Consensus Estimate for Nordic American Tankers’ current-year earnings has been revised upward by 36.9% in the past 60 days.

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