Heartland Express profit hits speed bump of higher driver wages

Heartland Express profit hits speed bump of higher driver wages

Higher driver wages and the lingering effects of a 2013 acquisition pulled down second-quarter profits at truckload carrier Heartland Express.

Net income at the Iowa-based firm fell 11.9 percent year-over-year to $23.3 million in the second quarter. Operating revenue also decreased 15.5 percent year-over-year to $191.7 million.

The second-quarter results are in sharp contrast to the quarter prior, which saw 25.1 percent year-over-year increases in profit. However, Heartland, historically one of the most profitable carriers in the U.S., remains well ahead of its competitors with an operating ratio of 81.4 percent, down from 82.1 percent the prior year.

In the second quarter, Heartland was the most profitable of 13 truckload operators tracked by JOC.com, with an operating margin of 18.6 percent.

“The revenue decline appears to be related to the elimination of unacceptable residual freight resulting from the Gordon deal and the challenges associated with hiring and retaining high caliber drivers,” John G. Larkin, managing director at Stifel, said in a note to investors.

Heartland increased driver wages 13 percent between November and January in an effort to address the ongoing industry challenges of recruiting and retaining qualified drivers, the company said in a statement.

The Gordon acquisition, the company said,  also took a toll on second-quarter profits. It’s been more than a year since Heartland acquired the fast-growing Gordon Trucking for $300 million in cash, assets and debt. The elimination of residual freight from the deal may have set Heartland back in the second quarter of 2015, but Heartland executives are confident that, given time, the two firms will evolve into an even more powerful force together.

"We continue to show good progress towards our goal of getting our consolidated operating ratio, excluding gains on equipment, to our historical operating levels of the low 80s prior to the Gordon Trucking, Inc. acquisition in November 2013,” Heartland CEO Michael Gerdin said in a statement. "With the current average age of our tractor and trailer fleets, where they are estimated to be at the end of 2015, and the company being debt free, the company is solidly positioned for the upcoming years ahead, no matter what the environment holds."

Contact Reynolds Hutchins at reynolds.hutchins@ihs.com and follow him on Twitter:  @Hutchins_JOC.