LTL Earnings Sag in 3Q; Carriers See Weaker Demand

By Rip Watson, Senior Reporter

This story appears in the Oct. 27 print edition of Transport Topics.

Publicly traded less-than-truckload carriers generally posted lower earnings in the third quarter, with several fleets warning that freight volumes would get worse as the fourth quarter unfolds.

“We expect a very tough fourth quarter,” said Robert Davidson, Arkansas Best Corp.’s chief executive officer, noting that average daily tonnage during early October was 1 or 2 percentage points worse than the 5.1% third-quarter drop.

Increasing price competition and the weak economy are to blame for the lower results, said Justin Yagerman, a Wachovia Securities analyst.

YRC Worldwide on Oct. 23 reported earnings of $36.6 million, or 63 cents a share, down 10% from a year ago. Higher LTL and truckload profit helped Con-way Inc. squeeze out a 4% earnings gain to $38.8 million, or 81 cents, but the year-ago figures were reduced 9 cents for costs relating to blending three units into a single company.

Meanwhile, Old Dominion Freight Line raised its profit 17% to $23.4 million, or 63 cents a share, but Arkansas Best dropped 18% to $15.4 million, or 61 cents, and net income slipped 33% to $2.1 million at Vitran Corp.

“The sequential declines in tonnage and pricing trends for the third quarter and early weeks of the fourth quarter are not encouraging,” said Earl Congdon, Old Dominion executive chairman, attributing the trend to economic deterioration and uncertainty. “We remain extremely cautious about our short-term business outlook for the fourth quarter and beyond.”

Most carriers’ operating ratios worsened. YRC’s consolidated operating ratio deteriorated to 97.2 from 96.4. Con-way’s OR deteriorated to 92.6 from 92 at its LTL unit, as 9% revenue growth to $808.3 million outpaced a 2% rise in operating income to $61.1 million.

Old Dominion was an exception, improving to 89.8 from 90.6. The OR deteriorated to 94.7 at ABF Freight System, Arkansas Best’s LTL business, after 93.9 in the third quarter last year, and reached 98.2 at Vitran, up from 96.2.

YRC said that its overall revenue declined 3% to $2.38 million, and operating income fell 24% to $66.4 million. The company said its operating profit fell 31% at the national LTL unit but tripled to $1.67 million at the regional unit.

YRC’s results included pension-related gains of 84 cents a share and 21 cents from property disposals, and a charge of 10 cents a share for reorganization.

Con-way’s truckload operating income reached $15.2 million, compared with $7.7 million before a $4.7 million loss from service operated before the purchase of Contract Freighters Inc. in August 2007.

Better performance at that business, now called Con-way Truckload, cushioned a 41% drop in operating income at Menlo Logistics that was linked to integration costs in China. Logistics revenue rose 34% to $419.9 million, partly related to acquisitions and a government contract.

UPS Inc.’s revenue rose 9% at its LTL division to $598 million, but the company said the performance was hurt by U.S. economic conditions.

LTL shipments per day fell 4%, tonnage rose 0.2%, revenue per hundredweight climbed 8% and weight per shipment rose 3% (see story, p. 3).

Old Dominion, whose revenue rose 14% to $415.9 million, led the publicly traded group by increasing tonnage 7.4%. Op-erating income jumped 25% to $42.4 million.

Old Dominion’s weight per shipment rose 8.4% as shipments fell 0.9%. Revenue per hundredweight rose 7.2% including fuel surcharges and fell 1.5% without them.

Arkansas Best managed to in-crease revenue to $495.8 million, or 2%, from $486 million, but operating income slid 13% to $26.1 million. Lower injury claims shaved 1.2 percentage points from the third-quarter ratio for this year.

Tonnage per day fell 5.1% in the quarter and worsened progressively through the quarter after holding steady in the first half of the year, ABF said.

ABF’s total billed revenue per hundredweight rose 6% to $27.75 as weight per shipment rose and length of haul fell.

Vitran raised revenue 16% to $198.6 million, crediting a 35% rise in cross-border freight revenue between Canada and the United States as a key factor in the improvement.

Operating income dipped to $4 million from $5.6 million. Vitran said its logistics unit’s operating ratio improved to 93.8 from 94.2 as operating income rose 80% and revenue rose more than 70%.

Revenue per hundredweight was up 8% at Vitran, but tonnage rose 2% as total shipments dropped 0.2%.