Werner Enterprises, Omaha, Neb., reported that tightening capacity led to improvement in its business in the latter part of the second quarter.


Revenues increased 9% to $578.2 million in second quarter 2008 compared to $531.3 million in second quarter 2007. Revenues, excluding trucking fuel surcharges, declined 3% to $443.3 million in second quarter 2008 compared to $457.9 million in second quarter 2007. Earnings per share decreased 15% to 25 cents per share in second quarter 2008 compared to 30 cents per share in second quarter 2007. Werner made significant sequential progress by improving earnings per share from 12 cents in first quarter 2008 to 25 cents in second quarter 2008.

Freight demand for the company's van betwork of nearly 4,800 trucks in its Regional, Expedited and medium-to-long haul Van ("Van") fleets showed the normal seasonal improvement from first quarter to second quarter 2008. The percentage of loads to trucks (pre-books) in April and May 2008 were lower than in April and May 2007 and improved in June 2008, exceeding June 2007 levels. During the first half of July, Werner experienced the normal seasonal decline following the holiday, and pre-books tracked at about the same level as the first half of July 2007. The Regional and Expedited markets demonstrated the strongest improvement, with second quarter 2008 demand consistently exceeding second quarter 2007.

Although the domestic economy remains sluggish, Werner experienced improving freight demand over the last five weeks of second quarter 2008 due to the tightening of capacity. Management believes the primary reason for the freight improvement during June 2008 is due to trucking company failures, and shipper concerns about the potential for further trucking company failures, which results in more shipments being offered to high-service, financially-strong companies such as Werner. The rapid increase in diesel fuel prices during second quarter 2008 likely caused an acceleration of trucking company failures. As carrier failures have been occurring, shippers' understanding of the overall fuel impact has improved. In addition, many trucking companies, including Werner, reduced the size of their fleets over the past year to adapt to the challenging market conditions.

With respect to pricing and rates, the overall rate market has shifted from a rate decrease market to a rate stable market. If freight demand improves in the third quarter, the potential exists to begin obtaining necessary rate increases in the second half of 2008.

In mid-March 2007, Werner began reducing its Van fleet to better match declining load volumes with fewer trucks. This proactive decision helped Werner achieve measurable performance improvement by increasing average miles per tractor over 3% and improving revenue per total mile slightly in second quarter 2008 compared to second quarter 2007. Werner employees continue to work extremely hard to produce better asset utilization and provide outstanding customer service, while at the same time tightly managing controllable costs. In addition, the expanding Werner Value Added Services ("VAS") logistics division is producing continued improved results. The Company sincerely appreciates and respects the outstanding performance of the entire Werner team during these challenging times. The Company also believes it is well positioned to capitalize on the anticipated forthcoming opportunities in the markets it serves.

Diesel fuel prices reached unprecedented levels during second quarter 2008. Compared to the same month in the prior year, diesel fuel costs were $1.22 per gallon higher in April 2008, $1.63 per gallon higher in May 2008, and $1.70 per gallon higher in June 2008. For the first 17 days of July 2008 compared to the same period in 2007, average fuel prices increased $1.77 per gallon. Fuel expense increased $55.0 million and rent and purchased transportation expense paid to owner-operator drivers (which increased due to the higher fuel reimbursement) increased $5.5 million, when comparing second quarter 2008 to second quarter 2007.

Werner and the truckload industry as a whole do not recover the entire fuel cost increase through fuel surcharge programs. In the past, the Company negotiated higher rates with customers to recover the fuel expense shortfall in base rates per mile. However, with the softer freight market, Werner has not yet been able to recover the fuel expense shortfall in base rates. As a result, increases in the cost of fuel may continue to negatively impact earnings per share until freight market conditions allow the Company to recover this shortfall from customers.

During second quarter 2008, the Company improved the controllable aspects of fuel expense by implementing numerous initiatives to improve fuel efficiency. These initiatives include reducing truck idle time, lowering non-billable miles, continued increases in the percentage of aerodynamic, more fuel-efficient trucks in the company truck fleet, and installing auxiliary power units ("APUs") in company trucks. As of June 30, 2008, the Company had installed APUs in approximately 30% of the company-owned truck fleet. The average miles per gallon ("mpg") of company trucks improved in second quarter 2008 compared to second quarter 2007.

Werner reports it has made meaningful positive progress in lowering diesel fuel consumption through its proactive initiatives to improve fuel mpg. Due strictly to these mpg improvements, Werner purchased nearly 2 million fewer gallons in second quarter 2008 than in second quarter 2007. Werner intends to continue these efforts as an environmentally conscious company.

The U.S. Department of Energy national diesel fuel price index exceeded $4.70 per gallon during June 2008 and averaged $4.37 per gallon in second quarter 2008 compared to $2.81 per gallon in second quarter 2007. For longer haul shipments (over approximately 1,000 miles per trip), the Company observed a modal shift for some shipments from truckload to rail intermodal. The Company believes that because of the effect of higher priced diesel fuel on truckload freight rates, some price-sensitive shippers have been reallocating a greater portion of their long-haul freight from truckload to rail intermodal in recent months. This modal shift is supported by the Company's Intermodal unit within VAS. Ultimately the customer is able to stay with Werner while exploring the lowest cost delivery option on a shipment-by-shipment basis. The Company also believes this partial modal shift has contributed to the more significant decline in freight demand in the longer haul truckload market, although in only rare cases has the customer ultimately transitioned from Werner altogether. The Company has already proactively adapted to this modal shift by reducing the number of trucks in its Van fleet from 3,000 trucks in March 2007 to approximately 2,100 trucks at June 30, 2008.

The driver recruiting and retention market remained less difficult than a year ago. The weakness in the construction and automotive industries and other factors continue to positively affect the Company's driver availability and selectivity. In addition, the Company's strong mileage utilization and financial strength are attractive to many drivers when compared to many other carriers. During the past few months, several large competitors reduced the maximum speed for their company trucks to as low as 60 miles per hour ("mph") in order to improve fuel mpg. This mph reduction essentially resulted in a pay cut for their drivers who must work longer hours to earn the same amount of pay. In addition, customer transit times in shipping lanes are negatively impacted when the maximum mph is lowered. Werner continues to carefully analyze all aspects of this issue and has no current plans to change the maximum speed for its company trucks from 65 mph.

The ongoing diversification of the Company's service offerings away
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