Truckload Fleets Maintain Earnings in 4Q Despite Falling Revenue by Cutting Costs

By Rip Watson, Senior Reporter

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

Eight publicly traded truckload fleets weathered the fourth quarter recession by lowering costs, including fuel, and posted earnings that either topped or came close to the year-earlier period.

However, while they held their own last quarter, every carrier’s revenue dropped and all expressed uncertainty or pessimism about the business environment for 2009, saying they were ready to make adjustments if needed.

For example, Kirk Thompson, chief executive officer of J.B. Hunt Transport Services, whose profits were basically flat, said Jan. 29, “It is not clear to us how long the challenging economic environment will last.”

“With the current economic environment we believe freight volumes are not likely to improve in the near term,” Heartland Express Inc.’s earnings announcement said. “Given the recent trends and current economic conditions, the company is prepared to downsize its fleet through attrition if the demand for freight services worsens.”

Profit rose because costs fell faster than revenue declined at Heartland, Knight Transportation, Inc., Marten Transport Ltd. and USA Truck Inc.

Results were nearly equal to the fourth quarter of 2007 at J.B. Hunt, Werner Enterprises Inc. and Celadon Group Inc., and earnings fell at Landstar System Inc. Revenue fell 3% or more at all eight carriers.

Truckload profit performance outpaced less-than-truckload operators. Profit fell at Old Dominion and Con-way’s LTL services while YRC Worldwide and Arkansas Best posted losses.

Earnings at J.B. Hunt, the largest of the full-load operators, fell 2% to $53.3 million, or 41 cents a share, and as revenue declined 7% to $879.8 million.

Hunt was able to almost keep pace with 2007’s fourth quarter because of lower interest costs tied to a tax settlement. Its operating income fell 11% as margins slipped 20% on intermodal business, the biggest contributor to earnings.

Intermodal revenue during peak season fell and asset utilization worsened, Hunt said in a Jan. 29 statement. The operating ratio for intermodal worsened to 87.3 from 84.

Volume in that unit rose 7% because of expansion into shorter-haul freight routes in the eastern United States and revenue rose 1% to $487.5 million.

The operating loss narrowed to $4.4 million at Hunt’s truckload business and profit climbed 11% for the dedicated contract freight business.

Hunt’s results were affected by $3.1 million in the 2008 quarter and $8.4 million in the prior-year quarter to write down the assets of equipment that is being sold.

Hunt is No. 8 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada.

Earnings at Landstar, No. 11 on the TT 100, fell 16% to $24.6 million, accompanied by a 6.1% revenue drop to $603.8 million. Loads handled by its agents and arranged through brokers both fell, with a total decline of 12% because of recession-related weakness in demand.

“Pricing, based on rate per load, also softened throughout the quarter as weak freight demand created additional excess capacity,” Landstar’s Chief Executive Officer Henry Gerkens said.

Pressure on rates also was intense for other truckload carriers, according to Knight and other carriers. The spot market was especially hit hard (see story, p. 1).

“Freight rates were also lower in the spot market due to the increased competition for freight and because the decline in fuel prices resulted in lower freight rates from third party brokerage companies,” Werner said in its Jan. 22 announcement.

The profit margin rose 3.1% at broker C.H. Robinson Worldwide Inc.’s truckload business, because costs to buy transportation fell, but volume declined 4%.

Lower taxes helped No. 13 Werner to raise its net income 19% to $18.6 million, or 26 cents a share, but operating income declined 9% to $30.6 million and revenue fell 7% to $490.7 million.

Celadon’s net income was little-changed at $1.7 million, or 8 cents a share, though sales fell 14%, pressured by lower rates from brokerage freight.

Among the fleets whose profit improved, earnings rose the most at Marten and Knight.

Marten’s profit nearly doubled to $5.8 million, or 27 cents a share, despite a 3% revenue drop to $140.1 million.

Knight’s profit improved to $27 million, or 19 cents a share, from $22.3 million, or 16 cents. Knight’s 17% earnings increase was accompanied by a 6% revenue decline.

Heartland’s earnings rose 16% to 19.4 million, or 20 cents a share, while revenue fell 7% to $142 million.

USA Truck earned $599,000, or 6 cents a share, reversing a $1.58 million loss. Its revenue fell 5% to $116 million.