Werner Enterprises Inc. (Nasdaq:WERN), Omaha, Neb., one of the nation's largest truckload transportation companies, reported improved operating revenues and earnings for the first quarter
ended March 31, 2005.
Net income increased 28% to $19.9 million compared to $15.6 million in first quarter 2004. Operating revenues increased 18% to $455.3 million compared to $386.3 million in first quarter 2004. Earnings per share for first quarter 2005 were $.25 per share, or 29% higher than the $.19 per share earned in first quarter 2004.
"I am pleased to report another excellent quarter," said chairman and CEO Clarence (C.L.) Werner. "Our Werner Enterprises operating model and the outstanding contributions of our drivers, owner-operators and non-driver employees produced record results. Compared to the abnormally strong freight and pricing market in first quarter 2004, demand for our services and pricing remained strong in first quarter 2005. For the first few weeks of April, freight demand is solid and is trending consistent with normal seasonal freight volumes."
Revenue per total mile, excluding fuel surcharges, continued to improve on a year-over-year basis with a 7.3% increase in first quarter 2005. The ongoing support of partner customers who agreed to contractual rate increases in third and fourth quarter 2004 contributed to the pricing improvement. This helped the company offset inflationary cost increases such as driver pay, fuel, truck engines, tolls and other costs.
According to Werner, historically freight demand in the first quarter is significantly weaker than the previous fourth quarter due to the seasonal decline from the peak retail season. However, the decline from fourth quarter 2004 to first quarter 2005 was less significant due to the increasing stability of the freight base and the strength of customer relationships. Werner’s dedicated fleet has grown to almost 40% of the total truck fleet which helped produce more consistent results.
According to Werner, the driver recruiting market continues to be extremely challenging. By placing more emphasis on training drivers, increasing the frequency of driver home time, providing drivers with a newer truck and maximizing driver productivity within the federal hours of service regulations, Werner is obtaining an adequate number of drivers to maintain its current fleet size. However, the supply of qualified truck drivers in the industry remains visibly constrained due to alternative jobs that are becoming available with an improved economy and stagnant demographic growth for the industry's targeted driver base over the next several years. Werner expects the tight driver market will make it very difficult for truckload carriers, both large and small, to add meaningful truck capacity in the near future.
To provide customers with additional capacity in this tight driver market, Werner is growing its non-asset based VAS division. For the quarter, VAS revenues rose 50% and operating income increased 115%.
Fuel prices (excluding fuel taxes) rose sharply in the latter part of February and throughout March 2005. Fuel expense, after considering fuel surcharge collections and the cost impact of owner-operator fuel reimbursements (which is included in rent and purchased transportation expense) and lower miles per gallon due to the new truck engines, had a one cent negative impact on earnings per share in first quarter 2005 compared to first quarter 2004. The strength of the company's fuel surcharge programs helped to limit the impact to first quarter 2005 earnings.
Fuel prices in the first eighteen days of April 2005 averaged 55 cents a gallon, or 49%, higher than average fuel prices for second quarter 2004. Assuming fuel prices remain at today's price levels throughout the remainder of second quarter 2005, the negative impact of fuel expense on earnings for second quarter 2005 compared to second quarter 2004 is estimated to be in the range of approximately two to three cents per share. This expected earnings impact is lessened due to the fact that in second quarter 2004 fuel prices were increasing and there was a temporary fuel price spike in the western United States. Both of these items reduced earnings in second quarter 2004.
Werner's fuel surcharge program is designed to recoup the higher cost of fuel from customers when fuel prices rise and automatically provide Werner customers with the benefit of lower costs when fuel prices decline. Werner is not pricing the higher cost of fuel in its base per-mile rates to customers, since this approach does not result in lower costs to customers when fuel prices decline.
The average age of the company's truck fleet declined to 1.54 years as of March 2005. The percentage of the company truck fleet with post-October 2002 engines increased from 47% as of December 2004 to 59% as of March 2005. The company intends to continue to keep its fleet as new as possible, in advance of the federally mandated engine emission standards which are required for all newly manufactured trucks beginning in January 2007. In addition, all truckload carriers will be required to use new ultra-low sulfur fuel for all of the existing trucks in their fleet beginning in mid-2006.
Preliminary estimates are that the new ultra-low sulfur fuel will cause an approximate 1% to 3% decline in fuel miles per gallon than current fuel. To gain a better understanding of the impact of these items, the company recently received a few January 2007 compliant test engines that the company will operate using the ultra-low sulfur fuel.
Werner Enterprises is debt-free and has no truck or trailer operating leases and, therefore, has no off-balance sheet debt. Stockholders' equity has grown to $793.0 million, or $9.99 per share.
The company's continuing goal is to improve its annual operating margin to 10% or better before increasing the fleet growth rate, assuming an adequate supply of drivers is available.
Werner Enterprises is a full-service transportation company providing truckload and logistics services throughout the 48 states, portions of Canada and Mexico. Werner is one of the nation's largest truckload transportation companies with a fleet of 8,650 trucks and 23,710 trailers.