Second-quarter earnings for publicly traded fleets ranked in order of the percentage point improvement in operating margins.
 - Source: Company Reports, Tahoe Ventures

Second-quarter earnings for publicly traded fleets ranked in order of the percentage point improvement in operating margins.

Source: Company Reports, Tahoe Ventures

When we look at second-quarter earnings reported by large publicly traded motor carriers, the 2.1% GDP growth in the second quarter seems to portray a stronger volume environment than experienced by the trucking industry.

As in the first quarter, this is likely the result of continued high inventories because of goods pre-shipped in the fourth quarter ahead of proposed tariffs, as well as the impacts of severe winter storms and spring flooding.

Truckload

Truckload operating profit margins dropped 0.8 percentage points from a year ago to 8.9%, thanks to a 1.7% revenue decline. The average fleet grew by 1.8%, but drove 4% fewer miles, and was paid 0.3% less in terms of average revenue per mile. This was a deterioration from a weak first quarter, where revenues fell 1.4% on a 1.5% average decline in truckload fleets. First-quarter miles driven were down 6.8% over the previous year, thanks to winter weather, yet fleets saw a solid 6.4% increase in revenues per mile.

Dedicated

More companies are breaking out dedicated truckload. While that data is not robust, there are some interesting observations.  Average revenue growth was strong, at 12.5%, although it was down from 16.9% in the first quarter and down from 21.1% in fourth-quarter 2018. The average operating profit margin of 11.5% was a 1.7 percentage point improvement over the 9.8% margins reported a year ago.  Fleet growth remained strong at 11.5%, same as the first quarter, though down from 2018 fourth-quarter growth of 15.7%. This is where all the new trucks are going. Despite the typical short-haul nature of dedicated operations, miles per truck rose 1.8% on a 4.8% improvement in yield (down from 6.6% in the first quarter and 8% in 2018 fourth quarter).

Less-than-truckload

The less-than-truckload space proved to be a bit of an oasis in terms of pricing, but weather and weak freight continued to impact a number of carriers. Revenue dropped 1.2%, down from an increase of 2.6% in the first quarter, with a 6% average tonnage decline, on a 4.3% improvement in revenue per hundredweight (yield statistic). 

This is actually stronger than it appears. YRC Worldwide’s much-weaker numbers are dragging down the average, related to their labor negotiation with the Teamsters. Excluding YRC results, tonnage only dropped 3%, with a average yield of 6.8%, implying almost 3.8% revenue growth.  The average industry profit margin dropped from a record high 8.9% in the fourth quarter of 2018 to 4.2% in the second quarter of this year – but again, excluding YRC, that figure was 8.8%, an improvement of 0.9 percentage points, so LTL carriers remain an oasis in a weaker trucking industry.

Overall, trucking company results were worse than the overall economic trend would lead you to expect, impacted by weather, pre-shipping, a drop in rail industry fluidity, and a late Easter. Where we saw the greatest deterioration was in over-the-road truckload pricing. Some shippers have been under-shipping contractual freight in order to make greater use of spot truck markets. However, labor cost increases in truckload averaged 5% this past quarter, down from 9.7% in the first quarter.

I believe the inventory overhang on truckers will remain until this fall, with capital expenditure plans likely to continue to moderate as margins continue to deteriorate.

Jeff Kauffman has been a recognized transportation authority for almost 30 years, most notably heading freight transportation research for Merrill Lynch. Currently he is managing director for Loop Capital Markets and also heads Tahoe Ventures, a transportation consulting company. He can be reached at jkauffman@truckinginfo.com.

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