UPDATED – Three large publicly held trucking fleets reported first quarter earnings on Wednesday with all showing a decline in profits from a year earlier.
Net income for Arizona-based Knight Transportation Inc. (NYSE: KNX) dropped 23.7% from a year earlier to $22.6 million. Earnings per share fell to 28 cents from 36 cents, missing a consensus expectation of 29 cents from analysts polled by Zacks Investment Research.
Operating income fell 16.4% to $38.7 million.Total revenue fell 6.3% to $272.1 million, but a lot of that drop was due to lower fuel prices – revenue excluding fuel surcharges fell by 1.4% to $253.6 million.
“The freight environment was less attractive in the first quarter of 2016 compared with the same quarter a year ago," explained Dave Jackson, president and CEO. “We attribute the change to excess trucking capacity, higher inventory ratios, and weak U.S. industrial production for the full quarter of this year. Freight volumes and revenue per loaded mile remained relatively stable during the first quarter compared with the 2015 quarter.”
He also blamed the truckload carrier’s lower performance on opportunities in non-contract markets being challenged by falling load counts and additional price competition, particularly from non-asset-based brokers.
However, the company expects an improved environment later this year due to significantly declining new truck orders, the recent expansion of industrial production in March, and increased regulatory burdens expected to phase in over the next several quarters that are expected to tighten industry capacity.
Knight’s trucking segment reported revenue excluding fuel surcharges fell 1.4% to $199.4 million in the most recent quarter, while its operating income dropped by 14.8% to $35.9 million.
According to Knight, driver wages also are higher compared to the first quarter of last year. This was partially offset by improved cost control in the operations and maintenance area of its business. Revenue per tractor, excluding fuel surcharge, increased 0.2%, year-over-year, attributable to an essentially flat average revenue per loaded mile, a 1.8% increase in average miles per tractor, and a 120 basis point increase in non-paid empty mile percentage, the company said.
Knight’s logistics operation, which consists of brokerage, intermodal, and other logistics services, plus its sourcing business, saw operating income decline by a larger margin, 32.5%, to $2.8 million, as revenue slipped 1.5% to $54.2 million. During the quarter, operating income of the logistics segment was negatively affected by $1.9 million due to the company leaving the agriculture sourcing business.
“We have remained focused on improving the productivity of our assets and expanding load volumes and margins in our logistics segment,” Jackson said. "During the first quarter, when compared to the same quarter last year, we improved our miles per tractor 1.8%, grew our brokerage load volumes 31%, and expanded our brokerage gross margin by 350 basis points.”
He said a slightly reduced tractor count, essentially flat revenue per tractor, and declines in revenue per load in Knight’s logistics business led to the decline in consolidated revenue, excluding trucking fuel surcharges.
Landstar Sees Record First Quarter Per Share Performance
Meantime, the Florida-based asset-light Landstar System Inc. (NASDAQ:LSTR) saw its net income slip by just under 2.8% to $29.2 million. At the same time, earnings per share hit a first quarter record of 69 cents compared to 67 cents a year earlier – 2 cents better than a Zacks consensus estimate.
Revenue for the multi-modal freight transportation and logistics provider for the quarter dropped 6.7% to $711.7 million, which the company said was entirely due to lower revenue per load, particularly on loads hauled via truck. Operating income fell 2.3% to $48 million.
"During the 2016 first quarter, the number of loads hauled via truck was higher than any first quarter in Landstar history,” said President and CEO Jim Gattoni. “Given the freight environment during the quarter, where demand was somewhat softer than during the 2015 first quarter, I am pleased with the continued execution of adding increased volumes.”
Truck transportation revenue hauled by independent truckers and truck brokerage carriers in the first quarter was $655.1 million, 92% of total revenue, compared to $708.9 million in the 2015 first quarter.
Revenue hauled by rail, air and ocean cargo carriers was $44.9 million, 6% of total revenue, compared to $42.8 million a year earlier.
According to Gattoni, Landstar’s truckload services experienced pricing pressure throughout the 2016 first quarter, as industry-wide truck capacity was more readily available compared to the 2015 first quarter.
This pricing pressure was more apparent in the U.S. spot market, in which the company mostly operates. "Additionally, the average cost of a gallon of diesel fuel was over 25% lower during the 2016 first quarter compared to the 2015 first quarter, putting additional pressure on pricing, especially as it relates to loads hauled via truck brokerage carriers,” he said. As a result, rvenue per load on loads hauled via truck was 10% lower in the 2016 first quarter compared to the 2015 first quarter.
Looking into the current quarter, Landstar said through the first weeks of April, the number of loads hauled via truck exceeded the same time in 2015 in a low single digit percentage, consistent with the growth rate Landstar experienced in this year's first quarter.
“Although we have recently experienced the normal seasonal uptick in revenue per load as we moved into April, I anticipate truck revenue per load in the 2016 second quarter to be below the 2015 second quarter in a high single digit to low double digit percentage range,” Gattoni said. “My expectation is that pricing conditions for truck services in the 2016 second quarter will continue to be impacted by more readily available truck capacity as compared to the prior year second quarter and a relatively low per gallon cost of diesel fuel."
The company anticipates if the current environment continues in the second quarter, revenue for the period should be in a range of $770 million to $820 million and diluted earnings per share to be in a range of 80 cents to.85 cents per share compared to 92 cents per share in the 2015 second quarter.
Werner Reports Lower Numbers Amid Softer Freight Market
Like the other two fleets, Nebraska-based Werner Enterprises Inc. (NASDAQ: WERN) saw declines in both profits and overall business, but one key measure moved slightly higher.
Net income fell 13% in the first quarter of this year from a year earlier to $20.1 million, with 28 cents in earnings per share compared to 32 cents in the first quarter of 2015, 3 cents less than a consensus estimate from Zacks Investment Research.
Operating income fell 15% to $32.5 million as revenue declined 3% to $482.8 million but trucking revenue net of fuel surcharges increased 2% to $336.7 million.
“Our first quarter 2016 freight demand was softer than the first quarters of 2015 and 2014; however, it was consistent with our average freight demand in the first quarters of 2013 and 2012,” Werner said in a statement. “Demand showed normal seasonality in first quarter 2016. Freight demand to date in April 2016 has been sluggish and softer than most April periods.”
The company reported average revenue per tractor per week, net of fuel surcharge, decreased 2.4% in first quarter 2016 compared to first quarter 2015 due to a 1.5% decrease in average miles per truck combined with a 0.9% decrease in average revenues per total mile, minus fuel surcharges.
Werner described the freight rate market as challenging in first quarter 2016. “While truckload capacity is currently available in the market, we believe significantly lower truck orders in recent months combined with the upcoming changes in trucking regulations should begin to tighten the capacity market in the next few quarters.”
The company said it is continuing to work with customers to recoup the cost increases associated with more expensive equipment, a shrinking supply of qualified drivers and an increasingly challenging regulatory environment. However, it noted recent customer bid activity trends have been mixed, with some working "aggressively working to take advantage of the favorable shorter term trends to the detriment of carriers.”
Based on the current rate and freight market, Werner believes it may be difficult to achieve rate per total mile increases on a year-over-year basis in the next few quarters.
Update adds Werner Enterprises earnings.