Freight transportation and logistics provider Saia (NASDAQ:SAIA) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 8.6% year on year to $842.1 million. Its GAAP profit of $3.46 per share was 1.8% below analysts’ consensus estimates.

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Saia President and CEO, Fritz Holzgrefe, commented on the quarter stating, “We are pleased with the continued progress of our footprint expansion, as we opened 11 new terminals and relocated one terminal during the third quarter. The majority of the terminals opened in the quarter were in the Great Plains states, and these locations enable us to provide direct service in and out of a geography that has historically been serviced through partner carriers. With these recent terminal openings, we are now able to provide direct service to all of the contiguous 48 states, which significantly enhances our value proposition to our customers. We remain committed to our continued investment in the customer experience. We are encouraged by early customer acceptance, and we are excited to expand our addressable market for new and existing customers.”

Company Overview

After realizing that there was more success in delivering produce rather than selling it, Saia (NASDAQ:SAIA) makes less-than-truckload deliveries in the United States.

Ground Transportation

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Sales Growth

Examining a company’s long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Saia’s 12.6% annualized revenue growth over the last five years was excellent. This shows it expanded quickly, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Saia’s recent history shows its demand slowed significantly as its annualized revenue growth of 7.3% over the last two years is well below its five-year trend. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Saia grew slower than we’d like, it did perform better than its peers.

We can dig further into the company’s revenue dynamics by analyzing its sales volumes, which reached 1.61 million in the latest quarter. Over the last two years, Saia’s sales volumes averaged 3% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Saia grew its revenue by 8.6% year on year, and its $842.1 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 8.9% over the next 12 months, an acceleration versus the last two years. This projection is above the sector average and illustrates the market thinks its newer products and services will catalyze higher growth rates.

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Operating Margin

Saia has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Saia’s annual operating margin rose by 6.8 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, Saia generated an operating profit margin of 14.9%, down 1.7 percentage points year on year. Since Saia’s operating margin decreased more than its gross margin, we can assume it was recently less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Earnings Per Share

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Saia’s EPS grew at an astounding 25.7% compounded annual growth rate over the last five years, higher than its 12.6% annualized revenue growth. This tells us the company became more profitable as it expanded.

We can take a deeper look into Saia’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Saia’s operating margin declined this quarter but expanded by 6.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business. For Saia, its two-year annual EPS growth of 1.8% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Saia reported EPS at $3.46, down from $3.67 in the same quarter last year. This print slightly missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Saia’s full-year EPS of $14.00 to grow by 9.2%.

Key Takeaways from Saia’s Q3 Results

While volumes exceeded expectations, leading to a revenue beat, both EBITDA and EPS missed. Holding aside expectations, operating margin fell year on year. Overall, this was a weaker quarter. The stock traded down 6.2% to $388 immediately following the results.

So should you invest in Saia right now?What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.