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Category: Transportation and Logistics

Supply Chain News: Strong Q2 for Three of Four Public LTL Carriers, as Profits Soar

 

Group has One of Its Strongest Quarters in Some Time, as Rates Up Solidly

Aug. 22, 2017
SCDigest Editorial Staff

It was generally a strong quarter in Q2 for our group of four publicly traded US LTL carriers in Q2, with profits up strong for all but YRC Worldwide and rates remaining strong.

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Rates seemed to be up in low low single digits. YRC, for example, noted that "The pricing environment remains stable in the less-than-truckload sector."

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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  Truckload Carriers See Mixed Q2 Results, with Signs of Freight Strength Coming).

Then last week we reviewed results from the four main US publicly traded rail carriers. (See Rail Carriers have Strong Q2 on Back of Soaring Coal Shipments.)

And as usual, we'll note our LTL 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.

 

Simiarly, XPO Logistics mixes together several reporting segments into its numbers for "transportation," and its LTL business (largely built from the Con-Way acquisition) is not broken out in any detail.

Total LTL group revenues in the quarter were up 7.7% across the four LTL carriers we follow, with some help from an increase in fuel surcharge revenues in the quarter.

Average tonnage was up a solid 3.7% in Q2. Meanwhile, several carriers in our group spoke favorably about the rate environment.

 

For example, ARCBest said that the percentage increase in revenue per hundredweight - a proxy for rate changes - in the company's LTL freight unit (ABF) was in the mid-single digits. At Saia, LTL revenue per hundredweight increased an impressive 7.3%.

 

In terms of profits, ARCBest's net income jumped 54.2%. Saia saw profts rise 32.6%, and Old Dominion saw a solid 20.9% profit gain. Only YRC missed the profit party, with net income falling 29.9%, though at least it remained modestly in the black.

 

But of the overall LTL group net profits of about $50 million, Old Dominion delivered $98.4 million of that total.

 

Net income as a percent of revenue was up from 2016, at 5.1% from 4.7% last year, in one of the best numbers in this metric in recent years.

 

Average operating ratios (OR), or operating expense divided by operating revenue, a key metric in the transport sector, fell to an unweighted average of 91.1% versus 91.8% in 2016. However, that as usual was a bit misleading, at Old Dominion's OR of 80.9% pulled down the average, with the other carriers in the low to mid-90 percentages. This is a huge advantage for Old Dominion.

 

Below is the full table of US LTL carrier results in Q2.

 

US LTL Carrier Q2 2017 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 Q2.

 

YRC Worldwide

Debt is still very much an issue at YRC. The total debt-to-adjusted EBITDA ratio for second quarter 2017 was 3.61 times compared to 3.32 times for second quarter 2016.

At the YRC Freight, excluding fuel surcharge, second quarter 2017 revenue per hundredweight - often seen as a proxy for rates changes - increased 1.1%.

At the Regional segment, excluding fuel surcharge, second quarter 2017 revenue per hundredweight increased 0.2%.

In a liquidity update, YRC said on June 30, 2017, the company had cash and cash equivalents and Managed Accessibility under its ABL facility totaling $253.4 million compared to $278.8 million as of June 30, 2016.

For the six months ended June 30, 2017, cash provided by operating activities was $38.4 million compared to $47.5 million for the six months ended June 30, 2016.

ARCBest/ABF

Excluding fuel surcharge, the percentage increase revenue per hundredweight on the company's LTL freight unit was in the mid-single digits.

Said that "The increase in total revenue and revenue per shipment for ArcBest's Asset-Based services [ABF] occurred within a positive industry pricing environment."

Said that daily freight tonnage was flat versus the same period last year, as LTL-rated tonnage growth was partially offset by purposeful reductions in volume-quoted business – meaning ABF walked away from some unprofitable business.

The companies "asset light" business (brokerage, expedited) grew rapidly in the quarter seeing revenues rise to $212 million in the quarter versus $196 million in 2016.

Noted that "The improvement in the 2017 operating environment that we expected to see has materialized, giving us a solid foundation upon which to initiate our LTL, space-based pricing effort that takes effect August 1," referring to the change to dimensional pricing rather than traditional freight class-based rates where such rates are higher.

Old Dominion

The 11.2% increase in revenue for the second quarter was driven by a 6.1% increase in LTL tonnage per day and a 3.8% increase in LTL revenue per hundredweight excluding fuel surcharge, a bullish sign for rates in the quarter.

The 80.9% operating ratio in Q2 was an all-time low, as operating costs improved as a percent of revenue when compared to the second quarter of 2016.

Company said on-time deliveries were in excess of 99% and the cargo claims ratio improved to a new Company record of less than 0.2%.

The company expects its capital expenditures for 2017 to total approximately $400 million, including planned expenditures of $185 million for real estate and service center expansion projects, $170 million for tractors and trailers, and $45 million for technology and other assets.

Most of that investment is funded out of operating cash flow. Old Dominion's net cash provided by operating activities was $127.7 million for the second quarter of 2017 and $238.5 million for the first half of the year.

Saia

Revenues were $358.2 million, a 14.8% increase.

Commented that "For the balance of the year, our focus will be on our Northeastern expansion, cost control and mix management. Given growing volumes, it is particularly important that all freight meet increasing profitability criteria."

LTL revenue per hundredweight increased an impressive 7.3%.


Any reaction to the Q2 results and trends from the LTL carriers? Let us know your thoughts at the Feedback section below.

 

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