Swift Suffers in First Quarter as Profits Plunge 84%
Swift Transportation reported profits plunged 84% in the first quarter compared with 2016 as truckload carriers suffered from continued excess capacity and lower contract prices than they had hoped for this year.
The Phoenix carrier earned only $5.2 million in profits, or 4 cents per share, well below the $31.9 million and 23 cents one year ago. The results were 7 cents below forecasts from industry analysts, according to a Bloomberg News survey. However, Swift was quick to note that it fell short of its own forecasts due to a change in a 5-year-old class-action lawsuit involving the old Central Refrigerated Service.
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“On April 13, 2017, we proposed a tentative settlement arrangement with regard to certain previously disclosed litigation in the refrigerated segment, which was originally scheduled to commence arbitration trial the week of April 24, 2017. As a result, in accordance with GAAP [generally accepted accounting principles], we increased our legal reserves by $11.7 million, or $0.06 per share as of March 31, 2017,” the company wrote in a letter to investors, referring to the Utah Collective and Individual Arbitration.
Former employees Gabriel Cilluffo, Kevin Shire and Bryan Ratterree filed a class-action lawsuit against Central Refrigerated Service in June 2012, alleging that they were misclassified as independent contractors rather than employees and thus violated the Fair Labor Standards Act.
Revenue fell 0.4% in the first quarter to $963.8 million, also below the Bloomberg News forecast of $978.7 million. On top of the lower revenue, expenses went up 3.6% to $948.2 million. As a result, Swift’s operating income plummeted 70% to $15.6 million.
“This challenging pricing environment, the impact of the more severe winter weather on maintenance and claims expense early in the quarter, the $11.7 million increase in legal reserves and the known headwinds of increased depreciation expense and lower gain on sale of equipment due to the soft used-truck market all served as headwinds to our quarterly results,” the company wrote. “We anticipate that the difficult operating environment will persist into the second quarter.”
Revenue in the truckload division dropped 5.7% to $429.6 million when fuel surcharges were removed from the total. On a positive note, revenue weekly revenue per tractor, excluding fuel, rose to $3,339 from $3,292 in the first quarter of 2016, but it wasn’t able to counteract a 3.2% decline in overall driven miles year-over-year. The company noted, though, that the percentage of deadhead miles dropped to 11.6% from 12.5% in 2016. The operating income, or the money after expenses were deducted from revenue, fell 56% to $15.9 million.
Swift’s dedicated unit was one of the few bright spots in the quarterly financial report. Revenue grew 2.3% to $136.8 million when fuel surcharges were removed from the total. Revenue per tractor per week, excluding fuel, increased to $3,461 from $3,339. However, operating income still dropped 38% to $11.6 million.
“Although we had a challenging first quarter, our sales pipeline has strengthened over the last several weeks, resulting in an increase in the number of pending bids for new business opportunities. We are encouraged by these developments, and when combined with our continued focus on cost control and operational efficiencies, we believe we will be able to make further improvements in this segment on both its top and bottom line,” Swift wrote.
At Swift Refrigerated, revenue declined 0.7% to $161.8 million after removing fuel surcharges. Revenue per tractor per week rose to $3,690 from $3,574, but it couldn’t offset a 1% reduction in loaded miles. The refrigerated division ended up with a $6.3 million operating loss after the money was added for the lawsuit.
Swift Intermodal, the smallest unit, reported a slight increase in revenue to $76.1 from $75.9 million. But load counts dropped 0.8% year-over-year, and the division ended up with a $109,000 operating loss.
Swift ranks No.6 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.
