Copyright 2004, Traffic World, Inc.
In its second quarter as a publicly traded company and in its first full year since rolling out nationwide as a nonunion carrier, Overnite Transportation Co., Richmond, Va., reported one of the best first quarters during what traditionally is the trucking industry''s slowest time of year.
Overnite, the nation''s sixth-largest stand-alone LTL carrier, earned $7.5 million net income for the first quarter on a 10.9 percent rise in revenue to $378.5 million, compared with pro forma net income of $5.6 million on $341.2 million revenue for the year-ago quarter.
"When you look back where we came from, our operating ratio (96.3 in the first quarter) is not as good as some in the industry," Overnite Chairman, President and CEO Leo H. Suggs said. "But if you look at the trend of where we were in 1999, I don''t think there is anybody who has shown as much progress as we have."
In 1999, Overnite was mired in what would be a three-year unfair labor practice strike by the Teamsters union. The Teamsters since have been decertified by virtually all of Overnite''s workers and the union now is focusing on trying to organize other nonunion truckers, such as USF Dugan.
"We are closing the gap," Suggs said. "The first quarter is the lowest-profit portion of the year. January and February, while we were profitable both months, is still the slowest part of the year."
Overnite became a stand-alone company last Nov. 5 when Union Pacific spun it off. Its pro forma results have been provided as if Overnite were a stand-alone entity for the first quarter of 2003.
Overnite''s year-ago quarter includes results from Motor Cargo, a Salt Lake City-based LTL carrier. Motor Cargo has been an invaluable addition, a strong market brand in the Rocky Mountain states that has enabled Suggs and company to offer nationwide service in addition to its regional and interregional offerings.
Operating income for the first quarter was $14 million, an increase of 30.2 percent, as compared to pro forma operating income of $10.7 million in the first quarter of 2003. Operating actual income for the first quarter of 2003 was $12.6 million, reflecting the $1.9 million pro forma adjustments.
Overnite''s operating ratio was 96.3 for the first quarter compared with 96.9 on a pro forma basis for the first quarter of 2003. The first quarter of 2004 included 64 workdays versus 63 in the first quarter of 2003.
"Certainly we think we are taking market share," Suggs said, but he didn''t know exactly from whom. "I don''t know if it''s a union vs. nonunion issue. In the last year we have completed our national footprint and we are seeking longer-haul freight. We are growing in that market.
"We are positioned differently in the market than we were two years ago. This is a market we are pushing, especially from our existing customers," Suggs said.
Going into what is forecast to be the strongest freight season in five or six years, Suggs said general rate increases should be healthy but there is no guarantee of that. But he warned shippers of a pending capacity crunch if the economy remains robust.
"You would certainly think the fact the economy appears to be pretty strong and if it continues that way, there should be capacity issues," Suggs said. "That provides the ingredients for a pretty strong pricing environment. You would think that would be true, but we are not basing our projections on that."
Overnite is projecting 2 to 3 percent rate increase growth for the rest of the year based on Gross Domestic Product growth in the 4 to 5 percent range, officials said. Overnite''s long-haul (over 1,200 miles) and regional business (under 500 miles) are each about 30 percent while interregional (500 to 1,200 miles) accounts for the remaining 40 percent, Suggs said.
"For the next couple of years, in view of the fact we''ve rather recently completed our national footprint, we think we have some opportunities to continue to grow the long-haul a little faster," he said.
But over the next 10 years, the regional and interregional markets should be the fastest-growing sector, according to Suggs.
Suggs said it''s "difficult to say" if the recent merger between Yellow and Roadway, the two biggest players in the long-haul sector, is having much effect on Overnite.
"A lot of what we purposely pursued is from existing customers," Suggs said of tonnage growth. "It''s very, very difficult to quantify accurately where this tonnage comes from. We have not seen customers voicing alarm and saying, ''We''re leaving Yellow and Roadway and coming to Overnite.''"
Suggs said April tonnage growth continued a month-by-month surge. Overnite''s January tonnage was up 7 percent year over year, February 11 percent, March 14 percent and April "looks pretty strong," Suggs said.
Suggs said contract renewal talks "certainly depend on the individual shippers" when it comes to ease of obtaining rate increases but said a possible midsummer capacity crunch is helping win stronger long-term contracts.
"It''s hard to find any customers willing to accept any price increases," Suggs said. "But when the economy is strong, customers with highest leveraged rates and lowest margins are feeling the pressure more than ones with the better margins. If the economy remains strong, I think there could be some capacity issues later this summer." Overnite customers generally have accepted fuel surcharges, he said.
Suggs said Overnite has excess capacity of around 10 percent although there is some "brick and mortar pressure" in parts of the West and East Coast. Suggs said tonnage growth was "strong across the board," and added that there was about 1 percent more growth in longer-haul shipments.
Suggs credited Overnite''s virtually union-free work force of 13,500 with maintaining strong relations with customers.
"We are constantly aware of the need to communicate fully and accurately with our employees and do the things we need to do to maintain their trust and confidence," Suggs said.
In answer to a question about the attempted organizing at USF Corp.''s Dugan unit, Suggs said that organizing has not spread to Overnite. "We see no evidence this is some sort of master IBT plan, but who knows," Suggs said.
Overnite said it expects to continue to incur incremental operating expenses as it develops as a stand-alone entity. Overnite anticipates that the full incremental stand-alone costs will be approximately $8.3 million on an annual pretax basis. Including these assumed incremental costs, Overnite anticipates second quarter 2004 earnings per diluted share to be about 45 cents a share and earnings per diluted share for the full year of about $1.70.
"Economic strength continued in the first quarter and, with our people''s focus on service and productivity, we were able to increase our market share. We plan to build on this momentum in the second quarter," said Suggs.
Daily revenue was up 9.2 percent while revenue per hundredweight was $14.52 in the first quarter vs. $14.48 last year.
"It''s a concerted effort to target more industrial freight," Overnite CFO Pat Hanley said. Hanley said Overnite''s rates were actually up 2 percent. Overnite is growing both on a national and regional LTL basis, officials said.
"All systems are go," Hanley said.
''All Systems Are Go''
''All Systems Are Go''
Copyright 2004, Traffic World, Inc.