Earnings Rise in 1st Quarter, but Firms Cautious on Future

Business in the first quarter was better for most trucking companies than the first three months of 2011, according to returns from publicly traded fleets and comments from privately held firms.

The companies also said that while April started out well, there are doubts about how high fuel costs and the driver shortage will affect future results.

Werner Enterprises, the nation’s fourth-largest truckload carrier, said it did well, but for perhaps less than ideal reasons.

“We continue to believe that favorable truckload demand trends are caused to a greater degree by supply-side constraints limiting truckload capacity, as compared to growing demand generated by increased economic activity,” the Omaha, Neb., carrier said in its April 18 report.

Werner saw quarterly revenue rise by 6.2% to $498.4 million, while net income surged by 30.4% to $21.2 million. Operating ratio for trucking services improved to 90.3 from 92.4 a year ago. That statistic measures expenses as a percentage of revenue.

Refrigerated carrier Marten Transport Ltd. said its revenue improved 9.9%, year-over-year, to $151.5 million, as operating ratio improved to 93.7 from 94.5 and net income jumped 33% to $5.45 million.

Regional truckload carrier Heartland Express had a 5.6% increase in revenue to $134.8 million and had a half-point improvement in operating ratio to 82.4. Net income rose by 11.5% to $16.6 million.

“Strong productivity from an unseasonably warm winter should generally offset moderating year-over-year volume growth,” Peter Nesvold of Jefferies & Co. said in assessing first-quarter reports.

Analyst John Larkin, who follows truckload carriers for Stifel, Nicolaus & Co., said he expects freight rates for general truckload shipments to improve by 2% to 6% this year, while dedicated contract carriage rates should grow by 2% to 4%.

He said truckload capacity has contracted by 20% in recent years, which is beneficial for the surviving carriers, but they face a tougher operating environment because of federal regulations.

Meanwhile, J.B. Hunt Transport Services’ intermodal, dedicated contract carriage and freight brokerage divisions all saw year-over-year profits rise faster than revenue, but the truckload division was the exception, generating 8% more quarterly revenue while profits declined by 16%.

Hunt said its basic truckload freight rates “increased 2.1% over the same period last year, but was unfavorably impacted by weaker spot pricing and fewer paid empty miles.”

It added that “improvements in miles per gallon were offset by higher fuel costs, increases in driver and independent contractor costs, higher safety expenses and fewer gains on equipment sales compared to the first quarter of 2011.”

On the less-than-truckload side, regional carrier A. Duie Pyle Cos. had the best first quarter in its 87-year history, President Steve O’Kane said.

“The easy winter helped a lot,” in that the carrier was able to avoid snow-removal costs and maintain both productivity on pickup-and-delivery work and a stream of revenue, O’Kane said.

“Our customers showed strength across the board, with the exception of building products, which were still off a little,” O’Kane said.

“We’re seeing the trend line continue with low double-digit tonnage growth and some improvement in yields,” O’Kane said. Asked if Pyle’s operating ratio broke below 90, he said “that’s the shopping district we’re in.”

Analysts at Wolfe, Trahan & Co. said they expect “upside less-than-truckload reports in the first quarter into better-than-typical seasonal volumes, higher fuel, benign weather and a friendly freight calendar.”

FedEx Freight, North America’s largest LTL carrier, reported earnings for its December-February quarter in March and was not profitable, although its loss narrowed substantially (3-26, p. 5). FedEx Ground division, which delivers parcels by truck, had a 13% improvement in revenue and a 43% jump in operating income.

Medium-size carriers also saw improvements, but their managers might be more attuned to worries.

“Our first quarter was much better than a year ago, both for revenue and profitability,” said Kevin Burch, president of Jet Express, which mainly hauls automotive parts and components. “Some of our customers are looking at paying overtime and expanding into Saturday work.”

“Fuel surcharges do offset price spikes, but the price is still a big issue, especially with smaller carriers, and then there’s the driver shortage,” Burch said. He added that carriers are raising rates, but then spending the money immediately to recruit more and better drivers, a long-term and substantial difficulty for the truckload sector (4-16, p. 1).

A former chairman of the Truckload Carriers Association, Burch said that while his quarterly results were good, he is worried about the economy’s slow rate of expansion and the effect high gasoline prices might have on future growth.

Also last week, Swift Transportation Co. reported a 9% gain in quarterly revenue to $826.9 million, while net income leapt 93.1% to $6.19 million.

In addition, USA Truck said its quarterly net loss accelerated to $4.87 million from $2.72 million, as revenue dipped 0.3%.