Most Fleets Report Profit Gains, Expect Stronger Second Quarter

This story appears in the April 26 print edition of Transport Topics.

Most publicly traded trucking companies have reported improved first-quarter earnings, adding evidence that the economic recovery is moving forward and offering hope that the second quarter will be even stronger.

Earnings rose 57% at Werner Enterprises Inc., by 24% at Landstar System Inc., 22% at J.B. Hunt Transport Services Inc., 20% at Ryder System Inc. and 5.1% at Knight Transportation. Forward Air reported a profit and reversed a year-ago loss.

Industry executives credited factors such as stronger business volumes and improved equipment utilization as key reasons for the earnings that rose for the first time since late 2008 for most fleets.

“The freight environment continues to improve,” stated Henry Gerkens, Landstar’s chief executive officer, who predicted second-quarter revenue growth could top 20%. “Recent trends in March, and thus far in April, indicate that both the revenue per load and the number of loads hauled remain strong. I expect these trends to continue throughout the second quarter.”

Landstar, one of two carriers to give a second-quarter forecast, said year-to-year earnings could rise as much as 26%.

However, some executives were not quite as upbeat.

“We expect to see improving demand and pricing for our transactional commercial rental product throughout the year,” Gregory Swienton, Ryder’s CEO, said. Ryder predicted per-share profit would rise as much as 16% in the second quarter.

At the same time, he tempered that outlook by cautioning that “customers still remain cautious about making long-term financial commitments.”

Werner said in its April 19 announcement that “we anticipate that steady improvement will continue as we progress throughout 2010.”

The improved market conditions were attributed primarily by Werner to decreased industry capacity, resulting, in part, from more fleet bankruptcies, with help from increased demand.

“We appear to be firmly in a recovering truckload freight market,” said Kevin Knight, CEO of Knight Transportation, who added that business “grew increasingly positive during the first quarter.”

Knight’s equipment utilization, measured in average miles per tractor, rose 3.8%. Werner boosted its tractor utilization by 2.3%.

Forward Air posted net income of $3.4 million, compared with a loss of $3.1 million in the year-ago period, prompting CEO Bruce Campbell to say on April 21 that “we have entered a period of sustained recovery.”

Meanwhile, quarterly net income fell slightly at Heartland Express Inc. and Marten Transport Ltd.

Only USA Truck reported a steep drop-off in earnings as its loss widened to $3 million from $1.9 million.

Marten, whose operating ratio was 94.4, questioned how much freight markets have improved, saying volume growth was “slight” as earnings fell 4%.

Heartland, whose earnings de-clined 16%, reported that by the end of the quarter “there were signs of improvement evidenced by in-creased freight demand, tightening capacity and stabilizing freight rates.”

Its operating ratio was 86.3, the best among any of the carriers reporting.

USA Truck said it was hurt by severe winter weather in January and February and was profitable in March.

Several carriers, including Werner and J.B. Hunt, noted that spot market pricing has improved.

Hunt said truckload spot pricing rose 3.7%. That increase typically precedes improving rates for contract freight, the company said.

“Pricing fundamentals are improving,” Robert W. Baird analyst Jon Langenfeld wrote in an investor note about Werner on April 20. “Significant improvement may take time.”

The reason, he explained, is that spot market prices have risen sooner than contract prices this year. Contract rates were driven down last year as shippers took advantage of excess capacity in 2009 to lock in lower rates that remain in place.

“As industry demand improves, supply-related capacity rationalization over the past three years has begun to result in capacity constraints,” Langenfeld wrote. “As capacity tightness persists, we expect contractual rates to benefit as shippers seek to secure capacity.”

Signals of an improved trucking market came from other sources, as well.

Indicators such as the Cass Freight Index, which measures freight bills paid, and the Ceridian-UCLA Pulse of Commerce Index, also showed strength in March.

Cass’ index rose 7.6% and the Ceridian index that measures diesel fuel purchases at truck stops climbed 9.3% last month.

Bob Costello, American Trucking Associations’ chief economist, also has forecast solid growth in March tonnage when that report is released on April 27.

There was even good news for trucking in the earnings report of C.H. Robinson Worldwide Inc., whose earnings fell last quarter.

The largest freight broker said profit margins were reduced because Robinson had to pay 3% more to truckers than in last year’s first quarter, as capacity tightened at the same time that freight volumes rose.

Both the stronger economy and tightening capacity have continued in April, Robinson said.