Profits for two of the industry's largest truckload companies turned lower in the second quarter of the year, while a third moved into the red, according to newly released earnings reports. But Werner and Swift both see capacity tightening and rates improving as the electronic logs mandate approaches next year.
Werner Enterprises Inc. (NASDAQ: WERN) saw a 30% drop in its net income from the same time the year before, totaling $18.3 million, or 25 cents per share compared to 44 cents in the second quarter of 2015. The per share performance was at the upper end of downwardly revised guidance issued by the company a month earlier.
Total revenue for the Nebraska-based company fell 7% to $498.7 million as trucking revenue less fuel surcharges declined 5% to $335.4 million. The company’s truckload operations, the lion’s share of its business, saw second quarter revenue decline to $379.2 million from $417 million a year earlier. Its logistics business was steady with nearly $104 million in revenue.
The main reasons for the lower earnings were sluggish freight market conditions, the cost of driver pay increases implemented in first quarter 2016 and independent contractor per mile increases in fourth quarter 2015, and a soft used truck market, according to the company.
“Demand was weakest in April 2016 and showed some modest seasonal improvement in May and June. Freight volumes and transactional spot market pricing in the one-way truckload market were disappointing relative to expectations,” Werner said in a statement. “During June 2016, we shifted approximately 150 trucks from one-way truckload into dedicated to lessen the impact in the more difficult one-way truckload market.”
Adding to the company's problems, Werner said an excess supply of truck capacity industry-wide created a market in which customers began to push harder for contractual rate cuts, causing it to drop some customers during the contract bid season as it believes rates will turn higher next year.
“This decision resulted in a greater than normal percentage of one-way truckload trucks in the transactional spot market during second quarter 2016; however, this spot market percentage began to decline from May to June,” the company said.
So far in the current quarter, Werner said freight demand has been better than most comparable July-to-date time periods, and this has begun to help improve spot market pricing.
Swift Transportation Profit Gives Back 16%
Swift Transportation Co. (NYSE: SWFT) saw its net profit fall by a smaller margin, about 16%, totaling $42.9 million, or 32 cents a share, compared to 35 cents per share a year earlier.
Total revenue fell 4.5% to $1.01 billion, but revenue minus fuel surcharges was nearly unchanged at $935 million.
Like Werner, Swift said it made changes in its fleet to address the problem of less revenue. The Arizona-based company reduced its average operational truck count by 267 trucks from the first quarter of 2016, and by 244 trucks year-over-year in the second quarter, “to drive improvements in asset utilization, as the truckload market continued to be challenging throughout the second quarter.”
Swift has said it also increased its participation in the spot market to help offset the lack of available freight in certain markets and has implemented some cost-saving measures.
Swift’s truckload division saw revenue fall to $517.6 million from $555.7 million a year earlier, due mainly to a 1.5% reduction in loaded miles driven and a 0.9% decrease in revenue minus fuel surcharge per loaded mile.
Its dedicated segment revenue inched higher, from $234.2 million a year earlier to $237.2 million in the most recent quarter, thanks to better pricing and freight mix.
The refrigerated operation revenue fell around $10 million to $87.1 million. This was attributed to a 3.7% decrease in revenue minus fuel surcharge per loaded mile and a 3.3% reduction in loaded miles driven.
Intermodal revenue declined just over $8 million to $90.1 million, due in large part to a 6.7% drop in the number of loads.
Despite the lower overall performance, in a letter to shareholders Swift said, “We remain optimistic the freight environment will improve throughout the remainder of this year and will gain momentum in 2017 as the electronic logging device (ELD) mandate draws closer.”
Acquisition Costs Hurt Forward Air
Forward Air Corp. (NASDAQ:FWRD) reported a net loss of $10.1 million, or 33 cents per share, compared to net income of $11.8 million, or 38 cents per share in the second quarter of 2015.
It said the reason was due to a charge it had to take against its earnings resulting from its purchase of the fleets Total Quality in 2013 and Towne in 2015. When they are excluded, adjusted net income increased to $17.3 million from $16 million a year earlier. Similarly, adjusted earnings increased to 57 cents compared with 51 cents in the prior-year quarter.
Forward Air saw its second quarter total revenue decline 4.4% to $238.6 million as it reported less business in its expedited less-than-truckload operation, where truck tonnage fell 6.8%, along with a drop in revenue for its intermodal operations. Its expedited truckload business was steady.
“In spite of a sluggish economic outlook, we feel that we are well positioned going into the second half of the year. In the meantime, any incremental pick up in freight volumes should be meaningful to the bottom line,” said Bruce A. Campbell, chairman, president, and CEO.
Forward Air expects third quarter year-over-year revenue growth to be in the range of 1% to 5%, with third quarter adjusted income to be between 61 cents and 65 cents per share, versus 58 cents per share in the third quarter of 2015.