Higher Volumes Boost LTL Profits in 1Q Despite Rising Fuel Prices, Bad Weather

This story appears in the May 2 print edition of Transport Topics.

Freight volumes and rates rose enough to overcome weather and fuel-price increase headwinds, four publicly traded less-than-truckload carriers said last week, reporting improved first-quarter results.

Old Dominion Freight Line Inc. led the industry by nearly tripling profit to $21.6 million and raising revenue 33%. Arkansas Best Corp. narrowed its loss to $12.8 million, while increasing revenue by 19%.

Vitran Inc.’s loss also shrank, declining to $224,000 from $929,000 as revenue rose 18%, and Saia Inc. reversed a 2010 loss of $3.2 million and reported $713,000 in net income along with a 15% revenue increase.

Arkansas Best summed up market conditions, saying in its April 25 earnings announcement that, “2011 results reflect continued improvements in broader economic and LTL market conditions.”

The stronger economy helped to boost tonnage 20% at Old Dominion, 19% at Arkansas Best, 6.6% at Vitran and 5.6% for Saia.

The latest trends for LTL fleets included fuel and weather effects.

“As a hardy Canadian used to extreme winters I can tell you that the winter we just experienced in the U.S. was probably the worst I have seen since we expanded our business into the United States,” Richard Gaetz, chief executive officer of Vitran, said on an April 27 investor call.

Meanwhile, Arkansas Best CEO Judith McReynolds said that the combination of rising fuel costs and lagging fuel surcharge collections accounted for about 20% of the company’s loss of 51 cents a share.

Arkansas Best’s fuel costs rose more than 33%, roughly in line with the rise in U.S. diesel fuel expense as tracked by the Energy Department.

Last week’s LTL reports included revenue and pricing information released by UPS Freight, whose individual unit results were “approximately break even”, according to corporate Chief Financial Officer Kurt Kuehn.

The LTL unit of UPS improved revenue per hundredweight — 100 pounds of freight — 8.5%, nearly matching Old Dominion’s 11.1% increase. Vitran improved by 6.6% and Saia by 8.2%.

ABF’s revenue per 100 pounds of freight, excluding fuel surcharge, was 1% lower than the first quarter of 2010, running counter to the trend at its LTL peers, although the inclusion of those fees resulted in a 2.3% increase.

While rates have improved, industry officials emphasized there was much more to be done.

“Pricing is still well off where it was in 2006 and needs aggressive management to recover back to those levels in the next 18 months,” Gaetz said.

“The improvement in our first-quarter operating performance was positive, but it was below our goals and expectations,” McReynolds said April 25.

McReynolds remained upbeat, saying “with the upturn in the economy and significantly less capacity serving the industry, the opportunities for ABF to grow profitably this year are favorable.”

Others agreed that the favorable first-quarter trends can be extended.

“We are confident about Old Dominion’s continuing growth potential in 2011,” CEO David Congdon said.

“A firming heavyweight industrial economy and greater volume/ pricing discipline” will support future rate improvements, analyst Jon Langenfeld of Robert W. Baird said in an April 27 report.

On an individual carrier basis, Old Dominion’s revenue rose to $422.7 million from $317.8 million, and earnings were 38 cents a share, up from 29 cents. Operating income was $37.9 million.

Arkansas Best’s revenue climbed to $434.9 million, including $402.4 million from its ABF Freight System LTL unit, whose operating loss was $22.6 million in the first quarter compared with $35.7 million a year earlier.

At Toronto-based Vitran, the net loss was 2 cents a share, excluding U.S. income tax effects. When included, the company said it had an adjusted profit of $368,000, or 2 cents a share. Last year’s quarterly loss equaled 8 cents a share. Revenue at Vitran climbed to $185.4 million, aided by the acquisition of Milan Express during the quarter.

Saia’s revenue rose to $243.0 million, and operating income was $4.1 million after a $2.3 million loss the year before.

“Meaningful margin advancement was achieved in spite of higher costs from purchased transportation, maintenance, accident severity and unusually harsh winter weather,” Saia CEO Richard O’Dell said.

The range of profitability for the carriers was reflected in their operating ratios. UPS Freight’s performance on that basis wasn’t disclosed.

Old Dominion led the group at 91.0, an improvement of 3.8 percentage points, while Arkansas Best’s ABF Freight System trailed at 105.6, which was better than its 110.7 in the 2010 quarter. Saia improved to 98.3 from 101.0 and Vitran hovered near 100, finishing the first quarter at 99.4, better than the 100.5 in the 2010 period.