Heartland Express, North Liberty, Iowa, saw a 13.2% drop in net income in the second quarter compared to last year, thanks largely to high fuel costs, but still plans to start an upgrade of its fleet in the third quarter.


Operating revenues for the quarter increased 10.4% to $164.6 million from $149.1 million in the second quarter of 2007. Net income fell 13.2% to $17.2 million from $19.8 million in the 2007 period. Earnings per share were $0.18 compared to $0.20 for the second quarter of 2007.

The driving components of the decrease in net income and earnings per share during the second quarter were the continued historical highs in fuel prices and decreases in gains on sales of property and equipment, offset by a favorable tax expense adjustment related to the application of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"). Operating income for the quarter was negatively impacted approximately $4.3 million or $0.03 per share due to increased fuel expenditures, net of fuel surcharge revenue passed through to customers and approximately $4.1 million or $0.03 per share due to a reduction in gains on disposal of property and equipment. Net income for the quarter was positively impacted approximately $1.8 million, as a reduction of income tax expense, or $0.02 per share due to FIN 48.

For the six months ended June 30, 2008, operating revenues increased 7.2% to $313.6 from $292.5 million during the same period in 2007. Net income decreased 24.8% to $31.9 million for the six month period ended June 30, 2008 from $42.4 million in the 2007 period. Earnings per share were $0.33 in 2008 compared to $0.43 in 2007 for the six month period. Operating income for the six months was negatively impacted approximately $9.3 million or $0.07 per share due to increased fuel expenditures, net of fuel surcharge revenue passed through to customers and approximately $9.1 million or $0.07 per share due to a reduction in gains on sales of property and equipment. Net income for the six month period was positively impacted approximately $2.3 million, as a reduction of income tax expense, or $0.02 per share due to FIN 48.

Heartland experienced a 60.8% increase in average fuel costs per gallon in the second quarter of 2008 compared to the second quarter of 2007. The average cost of fuel during the quarter ended June 30, 2008 was $4.21 compared to $2.62 in the second quarter of 2007. The company experienced a 51.9% increase in average fuel costs per gallon in the six month period ended June 30, 2008 compared to the same six month period of 2007. The average cost of fuel during the six month period ended June 30, 2008 was $3.80 compared to $2.50 in the six month period of 2007.

Heartland continues to stress its fuel cost controlling initiatives. Such initiatives include the continued purchasing of fuel in bulk for terminal locations and taking advantage of bulk purchases where it is cost effective to do so when compared to over-the-road purchases, reductions in tractor idle time and controlling out-of-route non-billable miles. All of the company's 11 terminal locations have fueling capabilities.

For the quarter, Heartland Express posted an operating ratio (operating expenses as a percentage of operating revenues) of 87.3% and a 10.5% net margin (net income as a percentage of operating revenues) compared to 81.2% and 13.3% for the same period of 2007. The company reported an operating ratio of 87.0% and a 10.2% net margin for the six months ended June 30, 2008 compared to 79.7% and 14.5% for the same period of 2007.

The increases in operating ratios for the current quarter and six month period were attributable to the increase in fuel costs and lower amounts of gains on disposals of property and equipment as described above.

Heartland plans to begin a tractor fleet upgrade in the third quarter. The upgrade is expected to include the purchase of approximately 1,600 International ProStar tractors. Delivery of tractors is scheduled to begin during the third quarter of 2008 and will continue through 2009. The company will also take delivery of 400 2009 Wabash trailers during the second half of 2008.