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From SCDigest's On-Target E-Magazine

- Aug. 7, 2012

Logistics News: Truckload Carriers Once Again Post Generally Solid Q2 Results, as Asset Discipline Continues to Pay Off

Profit Growth in Strong in Q2, While Worries about Driver Shortage Continue

SCDigest Editorial Staff

It's time once again for our quarterly review of the earnings reports and conference calls of major carriers.

This week, we report on truckload carriers. Next week we will cover less than truckload and rail carriers.

SCDigest Says:

Swift said it fell short of its goal to modestly increase its truck count "due to increased pressure on recruiting and retaining drivers." In other words, it didn't acquire trucks for which it couldn't find drivers to fill.

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Below, we provide tables of second quarter and first half results for 2012, and also summarize some of the key or interesting points made by company executives during those earnings calls or releases.

In general, it was more of the same for truckload carriers, as most continued showing strong profit growth in the quarter and full the first half of the year, as has been the pattern for a good while now.

Much of that appears to be due to continued asset discipline, some by choice, some driven by a continuing shortage of drivers in the industry that most of the carriers cited as their number one challenge.

In fact, driver pay is rising modestly at several carriers and special retention and recruitment programs are being rolled out at others.

"Capacity in our industry remains constrained by economic, safety and regulatory factors," Werner said earnings release.

It added that orders for new class 8 trucks have slowed in recent months, and that this is because "these orders slowed as current freight rate relief is not keeping pace with the increased costs and capital requirements for new and much more expensive EPA-compliant trucks."

Relative to driver shortages, Swift said it fell short of its goal to modestly increase its truck count "due to increased pressure on recruiting and retaining drivers." In other words, it didn't acquire trucks for which it couldn't find drivers to fill.

Most carriers described Q2 as very balanced in terms of supply and demand, and generally steady volumes up just a bit from 2011.

Rates appear to have risen about 3% or so from the same quarter last year.

But that belied strength in the bottom lines for most of these carriers.

As can be seen in our chart, unweighted revenues grew an average 6.4% for the quarter, while net income (again unweighted) was up a very strong 21.7% on average in Q2.

For the first half of the year, revenues were up an average 7.9%, while profits have risen 26.4%.

TL Carrier Q2 2012 Results

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TL Carrier 1H 2012 Results

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It is also important to note that revenue growth from pure trucking continue to be well below that for other segments, such as intermodal, dedicated services, brokerage, etc. Every carrier reports these a little differently, but for example intermodal as usual led the way again for JB Hunt, where revenues were up 12.7%, whereas straight trucking sales actually fell 2.9%.

(Transportation Management Article Continued Below)

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Trucking revenues at Werner were basically flat, whereas its intermodal and other value-added services saw revenue gains of 18%.

So there is a lot of change happening in the truckload sector, not only in terms of what segments are being focused on, but also in terms of service strategy, with several carriers moving to more "regional" orientations.

Below you will find some highlights from earnings calls or press releases.

JB Hunt

Rates per mile, excluding fuel surcharge, increased 3.2% during Q2 for all shippers. Rates from consistent shippers improved 2.5% compared to the same quarter a year ago

At the end of the quarter, Hunt operated 2,396 tractors compared to 2,508 a year ago.

Operating income increased 27% compared to 2011. Favorable changes in freight mix, strong seasonal spot pricing, steadily declining fuel costs and improvements in fuel efficiency were partially offset by increases in driver wages, independent contractor costs, lower utilization and higher empty miles compared to second quarter 2011.

Werner

Said freight demand trends are somewhat favorable to carriers due to supply side constraints limiting truckload capacity and demand generated by economic activity from our customers.

Average revenues per total mile, net of fuel surcharge, rose 2.6% in the second quarter compared to second quarter 2011. It sees a balanced market with respect to freight and trucks during Q2.

Werner says it continues "to be successful in this tightening capacity environment by working jointly with our customers to secure sustainable transportation solutions across all modes and to offset increased rates through enhanced optimization and transportation solutions whenever possible."

Werner was a hundred trucks short of its goal of 7300 due to the challenging driver market intends to maintain its fleet size at approximately this level

It said the driver recruiting and retention market continues to be challenging. Driver pay increased 1.5 cents per mile year-over-year, with Werner saying "an improved freight market, extended government unemployment benefit programs, a reduction in available truck driving school graduates and changing industry safety regulations [CSA 2010] tightened driver supply."

Swift Transportation

Swift saw its operating ratio (operating expenses divided by operaring revenues, one measure of profitability] improve for the 10th time in 11 quarters. Year to date, its OR has dropped 1.4%.

Though it did not break out the numbers separately,Swift said it saw intermodal revenue growth of 50.7% in the quarter versus 2011.

Swift said it continues to shift its business mix from over-the-road linehaul service to dedicated regional service - a major strategy shift.

Freight volumes were "good, not great" throughout the second quarter.

Pay for company drivers is going up about one cent per mile and 1-2 cents for independents.

It is implementing a program that will enable the company will be able to better manage its network and reduce company deadhead by incenting the closest truck, whether company or owner-operator, to haul the nearest available freight, regardless of the length of haul.

Marten

As with Swift, Marten is aggressively moving to a more regional truckload carriage model, saying "We have increased our regional operations to 69.0% of our truckload fleet as of June 30, 2012, from 60.7% as of a year earlier"

It added that "These strategies helped us to achieve our ninth consecutive year-over-year increase in quarterly profitability, as well as our best operating ratio net of fuel surcharge revenue since the second quarter of 2006"

Heartland Express

The company has now achieved ten consecutive quarters of year-over-year growth in operating revenues.

Heartland by far leads the sector in operating ratio, coming in at a very strong 80.9% for the quarter.

Like most others, fuel usage is a big isue at Heartland, with the company saying "We continue to focus on fuel economy and efficiency through the management of idle hours, investment in fuel efficient new tractors, trailer skirts, fuel surcharge billings, and strategic fuel purchasing decisions. These proactive efforts are top priorities in our daily routines."

Driver issues are again the biggest worry.

"Hiring and retaining safe and experienced drivers continues to be the biggest challenge facing our industry," the company said, adding that "We have branded ourselves over the years with our reputation for operating a new fleet of well-maintained equipment, our industry leading driver pay," and more

Knight Transportation

Knight continues to focus on reducing empty deadhead miles, dropping those miles by 3.8% in the quarter to 10.1% of the total.

It is also one of the few carriers to be even modestly aggressive about adding capacity, growing its tractor fleet to 4,070 in Q2 from 3,871 the year before.

''Having a sufficient number of qualified driving associates continues to be a major concern as the driver market continues to tighten," Knight also said

Celadon

Company saw rates increase 4.1% in Q2.

It has also lowered its average tractor age to just 1.5 years, with no truck older than a 2010 model.

It is also working to "streamline our operations to reduce the number of tractors to trailers being operated to support our existing business levels."

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