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Supply Chain News: Amid Soft Q4, Old Dominion Takes Nearly All the LTL Profits

 

Rate Increases Mixed, from 1.5 to More than 5 Percent, Depending on Carrier

March 1, 2017
SCDigest Editorial Staff

Joining the truckload and rail carriers we follow before them, the US less-than-truckload (LTL) sector was hit with a soft fright environment in Q4, causing net income to sag a bit for most carriers, even as Old Dominion took home almost all the profits.

Supply Chain Digest Says...

Saia and ABF Freight both said revenue per hundredweight - a proxy for rate changes - was up about 5% in the quarter.

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We're back as usual every quarter with our review of the results and trends across freight modes, starting two weeks ago week with US truckload carriers (see Tough Q4 and Full Year 2016 for Truckload Carriers).

Then last week we reviewed results from the four main US publicly traded rail carriers. (See Rail Carriers Keep Profits Rolling in Q4 Despite Weak Volumes.)

And as usual, we'll note our analysis does not include two of the largest LTL providers - UPS and FedEx - because neither UPS nor FedEx breaks out their numbers in a way that allows the LTL portion to be isolated out from other freight business such as truckload carriage (FedEx) and supply chain services (UPS).

In addition, FedEx runs an unusual fiscal calendar - with its first quarter ending Aug. 31, for example - so that comparisons to standard quarters in terms of results for the other carriers doesn't work well.

 

Last year, we added Roadrunner Transportation to our group, as it has substantial LTL business (mostly as a broker), but we had to pull them off for our Q4 analysis because the company has not yet released its Q4 numbers.

 

Why? A major accouting issue, leading Roadrunner to recently announced that "Related press releases, investor presentations or other communications describing Roadrunner's financial statements for these [previous] periods should no longer be relied upon."

 

Ouch!

Total LTL group revenues in the quarter were up 2.5% across the four LTL carriers we follow, though some of that came from an increase in fuel surcharge revenues, as the multi-quarter fall in diesel prices year over year ended.

But it was a soft quarter for sure, with average total tonnage per day in the quarter basically flat, up just 0.7%.

 

That soft environment naturally led to a decline in profits for three out of the four carriers we follow, even as overall profits for the group rose 12%. That's because TYC Worldwide was able to reduce its Q4 loss to $7.5 million from $23.5 million in 2015.

 

But of overall LTL group profits of about $73 million, Old Dominion delivered $68 million of that total.

 

Net income as a percent of revenue stayed the same as 2015, at 3.1%, as the LTL sector remains not very profitable, as has been the case for decades.

 

Not surprisingly then, average operating ratios (OR), or operating expense divided by operating revenue, a key metric in the transport sector, were also about flat, at an unweighted average of 94.0% versus 93.6% in 2015. However, that masked big differences between carriers, with Old Dominion having an OR of just 84.8%, and Saia at 94.3, while ARCBest/ABF Freight and YRC both coming in over 98%.

 

Old Dominion's once explosive growth again slowed for the fourth quarter in a row, after several years of regular gains near or above double digits in revenue and profits. Old Dominon's revenue was up just 1.5% in Q4, and profits were down, falling 5.1%. As usual, however, its results were still far superior to the other LTL carriers, with net income of 9.2% of revenues, compared to next best of just 3.4% by Saia.

 

But despite the general weakness, rates for the LTL carriers mostly stayed firm, though there was variance. YRC noted that at its YRC Freight unit, net of fuel surcharge, fourth quarter 2016 revenue per hundredweight - a proxy for changes in rates - decreased by 1.5% when compared to the same period in 2015. In its regional segment, the same metric was up 0.3%. Similarly, Old Dominion saw a 1.6% increase in LTL revenue per hundredweight net of fuel.

 

However, Saia and ABF Freight both said revenue per hundredweight was up about 5% in the quarter.

 

Below is the full table of US LTL carrier results in Q4.

 

US LTL Carrier Q4 2016 Results

 

 

Source: SCDigest from Carrier Earnings Releases

 

(See More Below)

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As usual, we provide a few highlights from the earnings releases of each carrier, which were very brief in Q4.

 

YRC Worldwide

 

Company says results would have been better except for a non-union pension settlement charge of $28.7 million.

For the full year, the perennially struggling YEC achieved operating income of $124.3 million.

Along those line, YRC said that in January 2017 it completed an amendment to its Term Loan Credit Agreement to adjust the leverage ratio covenant from the first quarter of 2017 through the fourth quarter of 2018, to reduce uncertainty regarding its on-going compliance with that covenant.

Despite the on-going financial challenges, YRC said it had spending of $100.6 million in capital expenditures and new operating leases for revenue equipment with a capital value equivalent of $152.5 million, for a total of $253.1 million, up $13.4 million from 2015. Tractors, trailers and technology were the primary investments during the quarter.

At its YRC Freight unit, net of fuel surcharge, fourth quarter 2016 revenue per hundredweight - a proxy for changes in rates - decreased by 1.5% when compared to the same period in 2015. In its regional segment, the same metric was up 0.3%.

ArcBest/ABF Freight

Company said Q4 asset-light revenue represented 30 percent of consolidated revenue, positively impacted by increased demand for expedited services.

It added that excluding fuel surcharge, the percentage increase in revenue per hundredweight on ArcBest's asset-based traditional LTL freight was in the mid-single digits.

Noted that "In the midst of a competitive but rational industry yield environment, ArcBest's asset-based pricing remained disciplined."

Old Dominion

Company saw a 1.6% increase in LTL revenue per hundredweight net of fuel, indicating rates were up modestly.

Capital expenditures were $66.8 million for the fourth quarter of 2016 and $417.9 million for the year. The company currently expects capital expenditures for 2017 to total approximately $385 million, including planned expenditures of $185 million for real estate and service center expansion projects, $155 million for tractors and trailers and $45 million for technology and other assets.

Saia

LTL revenue per hundred weight, including fuel, was up a solid 5.1% in Saia's LTL business, though fuel contributed to some of that rise.

Company said "We continued our very positive pricing actions and saw fourth quarter contractual renewals averaged 5.2%."

Sais noted that it is "moving forward with plans to begin service in select markets in Pennsylvania and New Jersey in the second quarter. These are the first steps in our multi-year strategy of becoming a 48-state LTL service provider."


Any reaction to the Q3 results and trends from the LTL carriers? Let us know your thoughts at the Feedback section below.

 

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