Con-way says LTL performance in Q1 may be a drag on earnings
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Transportation and logistics services provider Con-way Inc. this week released an update on first quarter trends at Con-way Freight, its less-than-truckload unit, which it said could collectively reduce Freight’s quarterly operating income by roughly $14 million.
Chief among the factors for the potential loss in income cited by Con-way were that daily weight is expected to be down about 1.5 percent compared to the first quarter of 2012, coupled with other items expects to negatively impact near-term profitability, including:
a reserve for a large vehicular claim; a charge related to a transition to new technology; costs associated with adverse weather; and field training expenses pertaining to line-haul optimization.
Con-way added that first quarter 2013 revenue per hundredweight, excluding the impact of fuel surcharges, is expected to increase approximately 3.5 percent annually.
“Tonnage trends, while below last year, have been relatively stable throughout the first quarter and our core operational performance is trending in the right direction,” said Douglas W. Stotlar, Con-way Inc. President and CEO, in a statement. “Despite the near-term cost headwinds at Con-way Freight, confidence in our key initiatives and the ability to expand margins—particularly in the second half of 2013—is being reinforced each day.”
The key initiatives cited by Stotlar include lane-based pricing and line-haul optimization, which Con-way said are expected to provide increasingly improved results in the coming months.
Con-way’s first quarter earnings release is scheduled for Wednesday, May 1. Net income of $11.8 million—or $0.21 per share—for the fourth quarter, which it released in February, was down roughly 50 percent compared to the fourth quarter of 2011 at $23.0 million and $0.41 per share, falling short of Wall Street estimates of $0.28 per share. Quarterly operating income—at $37.8 million—was down compared to $49.9 million the previous year, and revenue—at $1.36 billion—saw a 3.4 percent gain.
Quarterly revenue at Con-way Freight—at $824.7 million—was up 3.6 percent, with yield—or revenue per hundredweight—up 5.1 percent year-over-year—4.2 percent excluding fuel surcharge. Tonnage per day decreased 3.5 percent, and operating income of $21.5 million was up 9.9 percent compared to $19.6 million last year. Con-way said that the revenue growth was primarily attributable to improved yield and higher fuel surcharge revenue and partially offset by lower tonnage levels. And it added that the operating income improvement was impacted by an accelerated decline in daily tonnage at the end of the fourth quarter that it said exceeded normal seasonality.
“LTL freight is just OK - not great, and Con-way Freight is not expected to see benefits from its improvement initiatives (costs come first) until 2H13,” wrote David Ross, Stifel Nicolaus analyst, in a research note.
As LM has reported, the LTL sector has made up significant ground from the depths of the Great Recession. This is due, in part, to tighter capacity and steady rate gains since 2010.
What’s more, there are many drivers contributing to the turnaround occurring in the LTL sector, including a sharp focus on yield management and contractual relationships, coupled with an ongoing commitment to service reliability. But even with this positive momentum, it is clear challenges still remain as volumes and the general economy remain below pre-recession levels seen in 2007 and earlier.
About the AuthorJeff Berman Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
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