Fleet Management

Earnings Watch: UPS, ODFL Rise; Knight, P.A.M., Hub, Echo Fall

October 27, 2016

By Evan Lockridge

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At a time when many trucking companies are reporting lower third quarter profits, two report slight gains – but they remain the exception rather than the rule.

International Package Growth Drives UPS Profits

UPS Inc. (NYSE:UPS) reported net income increased 1% to $1.27 billion, or $1.44 per share, up from $1.257 billion, or $1.39 per share, a year earlier, due in large part to higher profit from international operations. Earnings per share were 1 cent better than analysts’ expectations.

Total reported revenue was $14.9 billion, up 4.9% over the same quarter last year for the Georgia-based fleet.

In the company’s supply chain and freight segment, revenue increased 8.1%, to $2.6 billion, primarily due to the Coyote Logistics acquisition midway through the third quarter last year.

According to the company, weak market conditions in its air freight forwarding and less-than truckload markets weighed on top-line growth, as operating profit declined 5.9% to $206 million from a year earlier.

UPS Freight LTL revenue per hundredweight increased 3.7% over the same period last year, however, “total tonnage remains challenged by current market conditions," noted the company. UPS Freight revenue fell 5.3% to $701 million.

U.S. domestic package revenue increased 4.8% over the third quarter of 2015, to $9.3 billion, but the unit’s operating profit slid 0.5% to $1.25 billion.

International package operating profit jumped 14% to $576 million, a record for any third quarter in company history.

UPS reaffirmed it expects adjusted earnings for 2016 to be between $5.70 to $5.90 per share.

ODFL Profit Edges 1.4% Higher

Profits increased by a slightly greater margin at Old Dominion Freight Line Inc. (NASDAQ: ODFL), as the mainly LTL fleet reported a 1.4% uptick, hitting $85.6 million.

Earnings per share in the most recent quarter were $1.03, 6 cents better than a consensus estimate from analysts, and up from 99 cents a year earlier.

Revenue increased just 0.4% to $782.6 million, while operating income fell 1.8% to $137.4 million.

“Although the economic environment continued to be weak during the quarter, the pricing environment remained stable, company LTL weight per shipment increased and ODFL exercised good control over its variable operating costs," according to David S. Congdon, vice chairman and CEO.

Revenue increased slightly compared to the third quarter of last year, as the 2.5% increase in LTL revenue per hundredweight offset the 1.3% decrease in LTL tons per day and the $6.4 million decrease in non-LTL revenue. “This expected decrease in non-LTL revenue was less than what we experienced in each of the three prior quarters and should become more comparable on a quarter-over-quarter basis in the fourth quarter," Congdon added.

Congdon said LTL weight per shipment increased on a year-over-year basis for the first time since the fourth quarter of 2014.

“This increase contributed to the growth in our LTL revenue per shipment and also improved certain productivity metrics. Overall, we operated with a high degree of efficiency during the quarter, which led to a reduction in our variable operating costs as a percent of revenue,” he said. “These improvements, however, were not significant enough to offset the increase in depreciation associated with our investments in capacity.”

Knight Transportation Profit Falls Nearly 23%

On the mostly truckload side, the numbers were nowhere near as good, with Knight Transportation Inc. (NYSE: KNX) reporting a 22.9% drop in profit.

Net income fell to $23.4 million, or 29 cents per share, compared to $30.3 million, or 37 cents per share in the third quarter of last year. Despite this drop, the per share performance beat a consensus estimate from analysts by 1 cent.

Revenue fell 6.5% to $280.5 million, while revenue excluding fuel surcharges declined 5.1% to $256.2 million. Operating income posted a 20.4% drop, hitting $36.9 million.

“The freight environment remained moderate in the third quarter of 2016 when compared to the same quarter last year,” said Dave Jackson, president and CEO. “We continued to see improvement in our asset utilization and experienced more favorable supply/demand dynamics as the third quarter progressed. We are beginning to see more non-contract opportunities in the first few weeks of October.”

He said that with significantly declining new truck orders, the weak used equipment market, and additional regulatory burdens expected to phase in during the next year, Knight expects continued improvement in the supply/demand relationship in the coming quarters.

Despite the lower numbers, Knight said it improved its miles per tractor 1.6% and grew brokerage load volumes 7% in the third quarter compared to a year earlier. Also, in certain markets, capacity began to tighten during the quarter, which resulted in its brokerage gross margins contracting by 1.4%.

Knight’s trucking segment saw revenue excluding fuel surcharge fall 3.6% to $204.3 million while its operating income moved 19.4% lower to $34.4 million. Logistics segment revenue dropped 10.6% to $52 million as operating income fell 32.9% to $2.5 million.

P.A.M. Transportation Profit Plummets As Revenue Increases

Also seeing lower earnings in the truckload sector is P.A.M. Transportation Services Inc. (NASDAQ:PTSI), where profits plunged 40% in the third quarter from a year earlier.

Net income totaled $3.5 million, compared to $5.8 million last year, as earnings per share fell to 53 cents from 80 cents a year ago.

This came despite total revenue increasing to $109.4 million from $107.1 million. Base revenue, which excludes fuel surcharge revenue, increased 4.2% to $96 million. Operating income fell nearly 50% to $5.3 million.

According to Daniel H. Cushman, president, the Arkansas-based carrier continues to be challenged by many of the same hurdles that others in the trucking industry are facing.

“Our situation can be summarized as the inability to increase freight rates to cover increasingly higher operating costs. As the economy remained somewhat sluggish and overcapacity existed throughout the quarter, our freight rates continued to be pressured lower,” he said. “This trend of declining rates is the polar opposite to that of operating costs, which continue to rise. Operating costs related to equipment, insurance, and employee wages and benefits have continued on an upward trend.”

Hub Group, Echo Global Logistics Profits Also Fall

On the transportation management side, which  includes trucking services, two other companies also reported lower earnings.

Hub Group Inc. (NASDAQ: HUBG) reported net income of $17.9 million for the third quarter compared to $19.8 million in the third quarter of 2015. Earnings per share totaled 54 cents compared to 55 cents a year earlier, 1 cent less than Wall Street expectations.

The lower earnings were blamed partly on lower intermodal pricing during the quarter.

Hub Group's revenue increased 4% to $933 million while operating income moved lower to $29.9 million from $33.4 million.

At Echo Global Logistics Inc. (NASDAQ: ECHO), net income dropped by 32% to $2.4 million as earnings per share fell to 8 cents from 11 cents.

Total revenue increased by 2% to $460.2 million from the third quarter of 2015. Net revenue, which excludes transportation costs, decreased by 7% to $80.9 million.

"Echo posted another strong quarter of market share gains in a softer freight market, as we continued growing volumes and revenue," said Doug Waggoner, chairman of the board and CEO. "Softer pricing resulting from prolonged market weakness contributed to net revenue margin decline, which impacted our profitability."

For the current quarter, the Illinois-based company expects revenue to be between $405 million and $425 million.

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