Werner Reports Lower Q1 Earnings on Higher Revenue
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Werner Enterprises’ revenue increased but earnings declined during the first quarter of 2023, the company reported May 3.
The Omaha, Neb.-based freight carrier and logistics provider posted net income attributable to the company of $35.2 million, or 55 cents a diluted share, for the three months ending March 31. That compared with $53.7 million, or 82 cents, during the same time the previous year. Total revenue increased 9% to $832.7 million from $764.6 million.
Werner ranks No. 17 on the Transport Topics Top 100 list of the largest for-hire carriers in North America and No. 34 on the TT Top 100 list of the largest logistics companies.
“On our fourth-quarter earnings call, we shared our expectation that freight conditions in the first half of 2023 would be challenging and competitive,” CEO Derek Leathers said during a call with investors. “We anticipated first-quarter freight would be soft due to seasonality, inventory destocking and the impact of the Fed’s monetary policies to control cost inflation.”
Leathers added freight was soft but better than expected in January and began to moderate as February progressed. March then experienced a step down in contrast to the strengthening the company typically sees during the month.
“Our primary focus entering the first quarter was operational execution,” Leathers said. “We leaned into the strength of our dedicated fleet, which performed well through superior customer service and fleet efficiency, resulting in solid financial results. As anticipated, one-way truckload and logistics were challenged by overall market conditions with less freight available and increased price competition. This was in contrast to the first quarter a year ago.”
Werner during the first quarter last year benefited from an unusually strong freight market with consistent project opportunities. Now the company is facing broader industry issues, including higher insurance, supplies and maintenance costs. It also is dealing with higher driver and nondriver pay alongside a moderating freight and rate environment.
“In the first quarter, freight trends were weak, and pricing was more competitive,” Leathers said. “Despite spot freight rates that declined nearly 40% year-over-year, the diversification and minimal spot exposure of our one-way truckload fleet enabled us to limit the decline in revenue per mile to 3%, which is at the upper end of our guidance range. The experienced driver market shows signs of improvement in an historically low unemployment market, enabling us to be more selective as we hire and retain drivers.”
Results were mixed in terms of Wall Street estimates. Analysts were looking for 71 cents per share and quarterly revenue of $830.24 million, according to Zacks Consensus Estimate.
“Over the last several years, we’ve built a business model designed to perform better in both good and less desirable freight markets,” Leathers said. “Our large and durable dedicated fleet, our diversified one-way truckload business, and our growing and increasingly diversified logistics segment provide us with a more resilient portfolio of complementary services and industry verticals.”
Werner announced during the quarter that he had selected Chris Wikoff to serve as its executive vice president, treasurer and chief financial officer. He assumed the role effective April 18. John Steele retired from those roles in August.
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“Coming into the role, I was highly optimistic about the strengths of Werner, including deep management experience, significant reach and a scale of one of the largest truckload carriers in North America,” Wikoff said during the call. “Werner has a history of operational excellence, a strong balance sheet, and steady growth and results such as a double-digit annual revenue and adjusted earnings growth over the last three years, combined with adjusted operating margin expansion that nearly doubled in the last six years.”
Truckload Transportation Services (TTS) segment revenue increased 5% to $588.3 million from $558.4 million year-over-year. Operating income decreased 33% to $51 million from $76.1 million. This was due to a softer freight market as well as higher operating expenses for supplies, maintenance and insurance. The report noted that during the quarter dedicated experienced solid and steady freight demand, but one-way truckload demand was seasonally weaker than normal.
It has been a fantastic week visiting with our new team members from ReedTMS Logistics! We are excited to welcome the Cedar Grove, Wisconsin, location to #TeamBlue!
ICYMI, read the full details on the exciting announcement here: https://t.co/oWbKlxVna9 pic.twitter.com/G2rZqrQ4k1 — Werner Logistics (@wernerlogistics) November 10, 2022
Logistics revenue increased 21% to $228.7 million from $189 million during. Operating income decreased 43% to $4.94 million from $8.68 million. The report noted that revenue increase was driven by a gain in shipments due to the ReedTMS acquisition and growth in organic volumes. This was partially offset by a decline in revenues per shipment. But the income loss was due to a seasonally soft freight market.
TD Cowen noted in a report the quarterly results missed expectations as margins within the TTS business worsened sequentially. The investment banking company added the company started off the year below the low end of its margin guidance.
“Like many other trucking companies, WERN did not see the typical March inflection and April has remained seasonally weak,” Cowen analyst Jason Seidl wrote in the report. “While [management] expressed optimism on inventory restocking and a 2H volume inflection based on customer expectations, a somber tone was expressed regarding the state of the overall macro.”
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