Moody's Affirms Echo Global Logistics' B3 Rating, Citing Steady Performance
Moody's has affirmed Echo Global Logistics' B3 corporate family rating with a stable outlook, indicating confidence in the company's ability to maintain steady earnings and adequate liquidity despite the current challenging freight market conditions. This assessment reflects the agency's view that Echo Global is navigating the economic climate effectively.
Key Rating Factors
The B3 rating from Moody's is considered equivalent to a B- at S&P Global Ratings. Moody's also affirmed Echo's probability of default rating at B3-PD and its senior secured bank credit facilities rating at B2, one notch higher than the corporate family rating. This reflects a tiered assessment of the company's financial obligations.
Moody's report highlighted Echo's "modest freight volume growth despite soft economic conditions, particularly in the manufacturing sector." However, the agency also noted that "Echo’s credit metrics, including financial leverage and interest coverage, remain weak," limiting financial flexibility until market conditions improve.
Financial Performance and Outlook
A summary of Echo Global's economics described the company as having "low profit margin, high leverage, and expectations for modest free cash flow over next 12 months." Despite these challenges, Moody's believes the company "will maintain steady earnings and adequate liquidity as it continues to navigate a persistently challenging freight trucking environment."
EBITDA margins at Echo Global are typically in the 3%-5% range, according to Moody's. As a comparison, RXO, a publicly-traded 3PL, reported a second-quarter EBITDA margin of 2.7%, compared to 3% a year earlier. This demonstrates the competitive landscape in the 3PL sector.
Historical Context and Market Position
Both the Moody's B3 rating and the S&P B- rating are six notches into non-investment grade territory. Echo Global has been in the public debt markets for approximately four years. Moody's initially gave it a B2 rating, which it downgraded to B3 in November 2023, shortly after S&P Global's similar shift. The company's move into debt markets followed its acquisition by The Jordan Co.
While the Moody’s report does not provide any figures on revenue or profitability, its general comments suggest a 3PL that is holding its own in the current freight market but with only a small chance of an imminent turnaround.
Market Analysis and Commentary
"Echo has demonstrated modest freight volume growth despite soft economic conditions, particularly in the manufacturing sector where the company derives a good portion of freight activity," Moody's stated. This statement points to Echo's relative resilience in a challenging market.
The report also noted that "Nonetheless, Echo’s credit metrics, including financial leverage and interest coverage, remain weak. Therefore, we believe the company’s financial flexibility is limited until broader freight market conditions improve." This highlights the constraints faced by Echo Global despite its stable rating.
