Dow Transports took a plunge today

[HenryTo]

Down a whopping 3.29% or 122.30 points! Looks like the following news took the truckers with it along with the Dow Jones Transports as well. Throughout the entire cyclical bull market over the last two years, the Dow Transports has always been the stronger and the leading index. Is this now changing? If so, what are the implications?

Like I have said before, we are now late in the cycle and liquidity is declining. All bullish intepretations should now be taken with a grain of salt. FWIW, I believe today's plunge in the Dow Transports is very ominous and could signal a further fall in the major indices in the next few weeks.
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UPDATE 2-USF falls on earns warning, takes truckers with it
Fri Apr 8, 2005 03:48 PM ET
By Reshma Kapadia

NEW YORK, April 8 (Reuters) - Investors hit the brakes on trucking shares Friday after a warning from USF Corp. (USFC.O: Quote, Profile, Research) that its quarterly earnings would be more than 50 percent below Wall Street estimates added to recent concerns that freight demand may be slowing.

USF shares fell 5 percent, and the warning also dragged down shares of Yellow Roadway Corp. (YELL.O: Quote, Profile, Research) , which in February agreed to buy USF for $1.37 billion, by nearly 6 percent.

The company's shared-loads, or less-than-truckload, carrier rivals also posted steep declines, with CNF Inc. (CNF.N: Quote, Profile, Research) shares down nearly 9 percent and Old Dominion Freight Line (ODFL.O: Quote, Profile, Research) sliding 7 percent.

Late Thursday, USF warned it expects first-quarter earnings before items to be about 12 cents to 16 cents a share, down from 32 cents a share a year earlier and compared with analysts' consensus estimate of 38 cents. It blamed the slowdown in the auto sector, slow growth in the Northeast and competition in the Southeast for its lowered outlook.

But rival Overnite Corp. (OVNT.O: Quote, Profile, Research) on Friday said its first-quarter earnings would be at or above the high end of its outlook of 32 cents to 38 cents a share. The shared-loads carrier said it sees continued improvement in customer mix and a stable pricing environment during the quarter.

That muted some of the declines in the trucking sector. Yellow Roadway also reiterated that USF's warning did not change the logic for its acquisition.

"Given their first-quarter revenue growth and tonnage increase, we believe the business fundamentals remain sound," said Yellow chief executive, chairman and president Bill Zollars.

Recent profit warnings from long-haul, truckload carriers raised worries about slowing freight demand could be an early indication that economic growth is slowing as oil prices rise.

The jury was still out on whether the issue is company-specific or signs of a broader trend that will also impact the shorter-haul LTL carriers, but some analysts were wary and trucking stocks took a beating, with the Dow Jones Trucking index sliding 4.6 percent at 254.95, its lowest point since late November.

"USFC's shortfall demonstrates that the pricing environment is weakening, possibly even faster than our cautious view," said Morgan Stanley analyst James Valentine in a research note, recommending investors avoid less-than-truckload stocks.

Although "it appears that the sky is falling on the truck sector," Merrill Lynch analyst Ken Hoexter said in a research note that USF's issues may be specific to it rather than the entire LTL sector.

"While we do not dismiss that there was some deceleration in volume growth in the first quarter, which was somewhat expected after the robust performance early last year, some LTL carriers noted that they had taken share from USF and that the market was not drying up," Hoexter said in the note.

S&P Transportation analyst Andrew West added overall trends still

seemed healthy, but investors may not get the upside earnings surprises of last year as the rate of change slows.

Last year's robust freight demand, spurred by U.S. economic expansion and global trade, and tight capacity exacerbated by a driver shortage that enabled truckers to raise prices. That drew momentum investors who may now be exiting, West said.

"With rising rates and tougher comparisons and higher valuations, moving further into the economic cycle, investors might start turning to other industries," West said.

Yellow shares fell $4.67 to $54.47 and USF shares fell $2.84 to $45.66 in afternoon trading while Overnite's shares lost 74 cents to $30.90.