Swift Transportation Co.’s earnings potential is expected to go up a notch after wrapping up a $225 million acquisition of TL carrier Central Refrigerated – a deal comprised of $189 million in cash and the assumption of $36 million in debt – according to Wall Street analysts.
“There are synergistic opportunities to expand the combined entity's refrigerated service by growing existing accounts, as well as expand operating margins through lowered operating expenses from purchasing economies and facility consolidation,” notedJohn Larkin, a transportation analyst with Stifel Nicolas, in research brief released yesterday.
Swift is also expected to further its margin expansion by converting Central's leased equipment to company-owned over the longer-term, he added.
In a letter to customers, Richard Stocking, Swift’s president and COO, said the deal creates “access to one of the largest fleet of temperature-controlled trailers in the U.S.,” with access to multiple terminals and drop yards located throughout the country, and expects the combination of “highly talented Swift and Central employees” coupled with a complementary portfolio of services will help us create a stronger company.
Stifel’s Larkin noted that his firm is raising its earnings per share (EPS) guidance for Swift by 4 cents a share for the second half of 2013, 10 cents per share for 2014, and 12 cents per share into 2015.
“Our updated estimates are predicated upon the belief that Central will grow top line revenue in the 6% to 8% range per year from 2012,” he explained, which should also help Swift achieve a slightly favorable compression of its operating ratio (OR) to 93.8% or 92.2%, when adjusted for fuel surcharge revenue, Larkin added.