Fleet Management

Earnings Watch: Knight, Covenant, Patriot, YRC Worldwide

January 25, 2017

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The latest batch of fleet earning reports from the fourth quarter are in, with three major fleets reporting revenue dips and a fourth signaling that it will have similar news when its formal report is released next month.

While Knight Transportation Inc. reported only a small drop in total revenue for both the final quarter of last year and all of 2016, net income declined by double digits.

The truckload and logistics company saw revenue decline by 0.6% in the final three months of last year compared to a year earlier, totaling $289.1 million as net income fell 24.2% to $22.2 million. Earnings per share declined to 27 cents from 36 cents.

According to company President and CEO Dave Jackson, the freight environment in the previous, as well as the current quarter, continues to show signs of improvement, with Knight securing more non-contract opportunities during the fourth quarter of 2016  compared to the same quarter last year.

“This resulted in continued year-over-year improvements in average miles per tractor and brokerage load count. Although our revenue per total mile continued to be down year over year, we experienced stronger sequential revenue per total mile growth from third quarter to fourth quarter this year when compared to the same period last year,” Jackson said.

Jackson said with declining new truck orders, a weak used equipment market, and additional regulatory burdens expected to phase in during 2017, the company expects “to make continued improvement in the supply/demand relationship in the coming quarters.”

For all of 2016, Knight’s total revenue fell 5.5% from the year before to $1.1 billion, while net income posted a 19.6% drop, totaling $93.9 million. Earnings per share fell from $1.42 in 2015 to $1.16 last year.

Knight’s trucking segment reported declines in operating income of 22.3% for the final quarter of last year and 16.6% for all of 2016. Drops in operating income for the logistics segment, which makes up a much smaller piece of the overall company, were 3.6% for the most recent quarter and 16.1% for all of last year.

Covenant Profit Falls By More Than 50%

The holding company for Covenant Transport, Southern Refrigerated Transport of Texarkana (SRT), and other, smaller, fleets, reported its fourth quarter income fell by more than half.

Covenant Transportation Group Inc. (CTG) said fourth quarter income totaled $6 million in the final three months of last year, or 33 cents per share, compared to $13.2 million, or 73 cents per share a year earlier. Total revenue dropped 8.2% in the fourth quarter to $191 million. Freight revenue, which excludes fuel surcharges, fell 9.2% to $173.5 million from a year earlier.

Not surprisingly, operating income fell from $24.3 million in the fourth quarter of 2015 to $12.3 million in the fourth quarter of 2016.

Despite the lower earnings, Chairman and CEO David R. Parker said the overall trucking environment improved in the final quarter of the year compared to the third quarter.

“The peak freight season was more condensed than in 2015 as rapidly growing e-commerce sales continue to compress the holiday inventory stocking and delivery season,” he said. “This year, the pace of freight, and need for our value-added expedited services, was concentrated largely between the week of Thanksgiving through Christmas Day, which was shorter than the past two peak seasons.”

During the fourth quarter, CTG reported average freight revenue per tractor declined 3.2%, lowering net profit by approximately $4.4 million. Team-driven trucks increased to an average of 1,032 teams in the fourth quarter of 2016, an increase of approximately 6.8% over the average of 966 teams in the fourth quarter of 2015.

According to Parker, average freight revenue per tractor per week fell to $4,280 during the 2016 quarter from $4,423 during the 2015 quarter. Average freight revenue per loaded mile decreased by 14.3 cents per mile, or -6.6%.  Parker said this decrease was partially offset by a 1% improvement in empty miles percentage and a 2.4% increase in average miles per tractor.

For all of 2016, CTG report net income was much lower than the year before, at $16.8 million compared to $42.1 million. Total revenue fell by a smaller margin, totaling $670.7 million versus $724.2 million in 2015. Fuel surcharges, year-over-year, fell nearly 29% from 2015 to $59.8 million in 2016.

“For 2017, we are forecasting sequential improvement throughout the year," said Richard B. Cribbs, the company's executive vice president and chief financial officer. " In the first half of 2017, we do not expect to match the earnings per share levels we generated for the first and second quarters of 2016. However, we believe the combination of an improving economy, growth of time-sensitive e-commerce freight, industry regulatory changes, retail inventory declines, year-over-year net fuel expense savings from our improved fuel hedge positions, and operational progress at SRT should deliver earnings improvement that result in higher earnings for the second half and potentially the full year of 2017.”

Patriot Transportation Income Falls Following BP Settlement

The parent company of liquid and dry bulk hauler Florida Rock & Tank Lines saw its profit decline in the final three months of 2016, which was the first quarter of the company's fiscal 2017.

Patriot Transportation Holding Inc. net income totaled $912,000, or 28 cents per share, compared to net income of $1.4 million, or $.42 per share, in the same quarter last year.

The prior year included a little more than $1 million of net income from the settlement of a claim with BP in connection with the 2010 Deepwater Horizon event in the Gulf of Mexico.

Total revenues for the quarter fell 2.1% from a year earlier to $28.8 million as transportation revenues, which exclude fuel surcharges, fell 2.7% to $27.3 due to the lower revenue miles, according to the company. However, it noted with improved pricing and effective use of equipment, transportation revenue per mile increased by 3.1% over the same quarter last year.

"During this first quarter, the overall driver turnover rate improved as compared to our experience over the past two years,” the company said in a statement. “However, we also saw a decrease in the flow of qualified applicants, causing a reduction of our average driver force down to 670 from 700 in the same quarter last year."

Patriot said a shortage of qualified drivers is the biggest headwind it faces, a concern as we head into the seasonally busier months ahead. But it is hopeful applicant flow will improve.

“We continue to see improvement in our per mile transportation revenue as well as our net fuel expense following the implementation of more neutral fuel surcharge tables last year,” Patriot said. “This year we are implementing several new technologies which we believe will enhance the driver experience, improve customer satisfaction and ultimately improve our bottom line results.”

YRC Worldwide Signals Earnings Shortfall

In the less-than-truckload sector, YRC Worldwide Inc. gave a bit of a preview of its earnings ahead of its scheduled full release next month.

The company anticipates reporting fourth quarter consolidated operating revenue of approximately $1.143 billion to $1.153 billion and consolidated operating income of approximately $10 million to $20 million. The company also expects to report adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of approximately $53 million to $63 million, plus a total debt balance of approximately $1.01 billion, a $40.5 million paydown of a loan in fourth quarter 2016.

For all of 2016, YRC Worldwide expects consolidated operating revenue of approximately $4.692 billion to $4.702 billion and consolidated operating income of approximately $119 million to $129 million. The company also anticipates reporting adjusted EBITDA of approximately $293 million to $303 million.

Both the quarterly and yearly operating income ranges are just slightly below consensus estimates from analysts. The fleet did not offer up a preview of net income for either period.

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