Saia, Inc.

Moat: 2.5/5

Understandability: 2/5

Balance Sheet Health: 4/5

Saia, Inc. is a transportation company that operates a less-than-truckload (LTL) service across the United States, providing a wide range of logistics and supply chain solutions for its customers.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Saia, Inc. (SAIA) is a multi-regional less-than-truckload (LTL) carrier, offering a comprehensive range of transportation and logistics services across the United States.

  • Revenue Distribution: SAIA derives the majority of its revenue from its core LTL operations, which involves transporting shipments that do not fill a full trailer. The company’s revenues come from contracts, a mix of large contracts and a variety of smaller shippers.
  • Industry Trends: The trucking industry, especially the LTL segment, faces several key trends:
    • Technological Adaptations: Technology is increasingly important for companies in the transportation space. They are modernizing operations with more effective tools for logistics and management. The use of mobile technologies, route optimization software and real-time tracking systems is on the rise. Companies are adapting these technologies to optimize resource utilization, to improve delivery times, and to improve the efficiency of the operations.
    • E-Commerce growth: the rapid growth of e-commerce has created a huge demand for delivery services. This has helped LTL companies to grow.
    • Capacity Imbalance: LTL trucking is experiencing issues with finding enough truck drivers and trucks and trailers, causing prices to increase.
  • Margins: Saia’s operating margins are relatively healthy. Their net income is consistently at about 10-15% of revenue (2022 being a historical high at 13% but 2023 coming down to 9%), and they seem to be able to operate in volatile conditions, and maintain an average of 20% ROE.
  • Competitive Landscape:
    • The LTL industry is highly competitive with major players such as Old Dominion Freight Line, FedEx Freight, and XPO Logistics.
    • The landscape is generally driven by pricing, but service level is also considered a point of competition for shippers.
  • What makes SAIA different?: The company is focused on providing reliable, time-definite service with its extensive network. The company does not specialize in a certain type of good, instead carrying freight of any kind to many different types of clients.
  • Key Factors for Long-Term Success: Having an efficient network to lower costs, keeping up with technological advancements, strong management with solid operational execution, focusing on customer satisfaction with high quality services.

Financial Analysis

  • Revenue Growth: Saia’s revenue has grown steadily over the years, driven by a combination of organic growth, geographic expansion, and market share gains.
  • Profitability: The company’s profitability is supported by a combination of disciplined pricing, careful cost management, and investments in automation and technologies to improve efficiency. The net profit margin has averaged around 7-12% in past years, higher during the pandemic, and now coming back to the historical average of around 10%. A concern is the higher fuel costs, but the fuel surcharges help mitigate those.
  • Balance Sheet: Saia has maintained a good balance sheet with a healthy level of cash and investments. Total assets are at $2.6B in 2023. Current liabilities are at $0.63B. This shows financial prudence and a capacity to invest and return value to shareholders. Total Debt in 2023 stood at around $0.2B.
  • Cash Flow: Saia generates consistent free cash flow, allowing it to continue investing in the business while also returning capital to shareholders through share buybacks and dividends.
  • Capital Expenditures: The majority of their CapEx is related to purchasing new tractors and trailers. Also, a good amount of CapEx goes to their IT initiatives. All this is essential for future growth.
  • Major Risks/Controversies :
    • Inflation: One of the biggest concerns is inflation. In periods of higher inflation, transportation costs and fuel costs typically increase, so Saia needs to be able to pass those costs to the customers without losing business.
    • Interest rate hikes: Also, they hold some variable interest-rate debt, which could get more expensive to service.
    • Labor Costs: A major concern in recent earnings calls was the higher costs of wages and benefits they were paying for employees. The cost of drivers, in particular, was a concern.
    • Overcapacity: There is a fear that they will overexpand in the market, as they have a big expansion of terminals and capacity in progress. But they are careful with expansion, and expansion is a major component for growth, as they need that capacity to grow.
    • Recession: If the market faces a recessionary phase, less people will need transportation services, so SAIA will be harmed.
  • Management Outlook: In their earnings calls, management has noted that they are keeping their focus on a few areas: organic growth, improving operating efficiency, continuing to invest in technologies and the workforce, and providing long-term value. They are expecting a return to growth in volumes after the correction they have seen in late 2022/early 2023. Also, they are looking at long-term capital commitments rather than relying on acquisitions.

Moat Analysis

SAIA has a narrow moat that stems from:

  • Scale Advantages: Saia has a relatively large network with many branches, giving it a cost advantage over smaller competitors.
  • Switching Costs: Switching costs are the ability of a company to keep the customer from moving to a competitor, and they are higher than average for LTL freight. Shippers usually prefer reliable logistics partners and are less likely to change to another provider as long as the current one provides a good service. Also, SAIA provides customized technology that integrates with the customer, making it even more difficult to change to a competitor.
  • Brand Name: SAIA has a history of providing high-quality and reliable services to its customers. This translates to a solid brand name for the company.

Although these factors contribute to a moat, it is not as wide and as defensible as I would like. Competitors in this market can catch up. So, even though they will benefit from it long-term, it’s unlikely it will be a wide moat.

  • Rating: 2.5 / 5

Understandability

The business is relatively easy to understand in terms of its core function: providing trucking services. However, the complexities involved in valuing an LTL company are high, and understanding all the nuances of their operations and business is hard.

  • Rating: 2 / 5

Balance Sheet Health

Saia’s balance sheet is relatively strong. Their debt is low, their cash reserves are adequate, and they have maintained good control of their operations. Their interest coverage ratios, their cash conversion cycle, and leverage ratios are all quite healthy, giving us a good idea of their ability to service their debt and meet ongoing and future obligations.

  • Rating: 4 / 5