Two Tales from Truckload Earnings

The first round of earnings reports from publicly owned truckload carriers reflects two important trends. First, the economy, while still expanding, is slowing. Second, trucking companies are doing a better job managing their bottom lines.

Let’s look at revenue growth rates at three companies: Werner Enterprises, Swift Transportation and Heartland Express. All three carriers released second quarter earnings this week, all three increased revenue, and all three were profitable.

Werner increased total revenue 1 percent in the second quarter, compared with 6 percent in the first quarter, 10 percent in the 2011 fourth quarter and 11 percent in the year ago quarter. Trucking revenue in this quarter actually dropped 1 percent.

Swift, the nation’s largest truckload carrier, increased revenue 2.6 percent in the most recent quarter, compared with a 9 percent increase in the first quarter, a 10.3 percent jump in the fourth quarter and 15.5 percent in the year ago quarter.

Heartland’s revenue record was a bit more bumpy, rising 1.8 percent in the second quarter after increasing 5.6 percent, 1.5 percent, 4.2 percent and 7 percent over the previous four quarters. Still, the slowdown in its pace is clearly significant.

Some of the smaller year-over-year revenue gains the carriers reported in the last quarter may be attributed to tough comparisons with 2011, when the trucking industry did make big financial gains over 2010 and the recession year of 2009.

But we don’t need to put those numbers in a graph to see that trucking is slowing, though not stopping. The freight market was “good, not great,” in the second quarter, Swift said, and volumes were consistent throughout the period.

Werner, the third-largest U.S. truckload carrier, said second-quarter freight demand demonstrated “typical seasonal trends” and improved into June: “Freight demand to date in July 2012 continues to show typical seasonal trends similar to July 2011.”

Jefferies Equity Research transportation analyst Peter Nesvold characterizes the freight economy as “moving sideways (at best).” Research firm Wolfe Trahan notes its trucking sources expect a “flattish” peak shipping season with “choppy” demand.

What sets 2012 apart as compared with, say, 2007 or 2008, is the way carriers are consistently managing profitability, the prerequisite for any "renaissance" in trucking. Both Swift and Werner bolstered their second-quarter bottom line, with Swift increasing net profit 72 percent year-over-year.

Werner’s net profit rose 11 percent in the second quarter, after rising 30 percent in the first quarter, and 31 percent in the year-ago quarter. Heartland saw profitability drop 19 percent year-over-year, but it remains a solidly profitable company.

Solid (and in one case, spectacular) increases in profit at Werner and Swift point to careful management of costs and pricing, equipment capacity and utilization. Swift saw gains in pricing, loaded tractor-trailer utilization and deadhead percentage.

Heartland’s bottom line was squeezed by higher equipment costs and lower than expected revenue from the sale of used assets and property, but it still had an 80.9 percent operating ratio — about as close to being a railroad as a trucker can get.

Trucking companies can’t escape economic cycles entirely, but they are doing a much better job of protecting themselves as the three-year economic recovery weakens than they did in the run-up to the Great Recession of 2007-2009.

Ultimately, that’s not just good business for carriers. It’s good for customers.

Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter @wbcassidy_joc.

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