Analysts Downgrade Roadrunner Following Weak Q1 Report, Lowered Guidance

Shares of Roadrunner Transportation Systems (RRTS) dove in afternoon trading after the company reported weaker-than-expected quarterly earnings and cut its guidance for the fiscal year. The company also provided an update on its downsizing costs.

WHAT'S NEW: After the market close yesterday, Roadrunner reported first quarter earnings per share of 8c on revenue of $465.6M, missing analysts' expectations of 23c and $469.2M, respectively. Excluding the costs related to downsizing, EPS for the quarter was 13c. The company also updated its guidance for the fiscal year, cutting its FY16 EPS view to $1.10-$1.25 from $1.30-$1.45, well below analysts' consensus estimates of $1.31, and lowered its adjusted EBITDA view for the year to $130M-$140M from $140M-$150M, citing margin reductions in its OEM ground and air expedite business as well as declining rates across most end markets.

WHAT'S NOTABLE: Commenting on the Q1 performance, Roadrunner CEO Mark DiBlasi said that the company incurred $3M overall of downsizing costs in its Truckload Logistics and LTL segments in Q1, with $2.3M of the costs from the former and the rest from the latter. The CEO noted that the downsizing costs in Q1 had a 5c impact on EPS and added that he expects a "similar amount" of downsizing costs in the second quarter.

STREET RESEARCH: This morning, KeyBanc analyst Todd Fowler downgraded Roadrunner to Sector Weight from Overweight, citing the company's "softer" Q1 results as well as uncertain underlying freight activity. Fowler said that, with further risk to the company's updated FY16 guidance, he views valuation as fair and is "moving to the sidelines" at this time. The analyst said he is "discouraged" with recent execution and does not anticipate a "clear path" to updated guidance.

On the other hand, Fowler added that he expects "relatively favorable" free cash of $55M, supporting leverage lowering to under 3x by year end and limiting "more meaningful" downside. In addition, BB&T analyst Thomas Albrecht downgraded Roadrunner to Underweight from Hold, saying he has a low level of confidence in the company's outlook.

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