Some LTL carriers buffeted by earnings headwinds in first quarter

The first quarter is typically the slowest period of freight demand for LTL carriers. With a few notable exceptions, that was reflected in first quarter earnings reports of the major publicly held LTL carriers.

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The first quarter is typically the slowest period of freight demand for LTL carriers. With a few notable exceptions, that was reflected in first quarter earnings reports of the major publicly held LTL carriers.
The notable exception was YRC Freight, which operates the third-largest LTL concern in its long-haul unit and the eighth-largest regional operation with its New Penn, Holland and Reddaway units.
YRC was able to nearly quadruple its year-over-year operating income to $13.4 million compared with $3.7 million for first quarter 2015. Its adjusted EBITDA (earnings before interest, debt, taxes and amortization) increased to $62.9 million, a 7% improvement compared to first quarter 2015. Parent YRC Worldwide had total revenue of $1.12 billion, virtually the same from the $1.18 billion a year ago.
YRC Freight improved its operating ratio to 99.4 from 100.0 in the year-ago first quarter. YRC regionals improved even further, posting a 97.1 OR compared with a 99.0 in the year-ago first quarter. Improved yield from continued pricing discipline contributed to an operating ratio of 98.8 on a consolidated basis, YRC said.
YRC Freight recently added its new Accelerated service which allows customers’ non-guaranteed shipments to reach their destinations one to two days faster than standard transit times.
At YRC Freight, excluding fuel surcharge, first quarter 2016 revenue per shipment increased 1.8% and revenue per hundredweight increased by 3.7% when compared to the same period in 2015. Including fuel surcharge, revenue per shipment decreased 2.3% and revenue per hundredweight decreased 0.5%.
At the Regional segment, excluding fuel surcharge, first quarter 2016 revenue per shipment increased 0.8% and revenue per hundredweight increased by 2.4% compared to the first quarter 2015. Including fuel surcharge, revenue per shipment decreased 3.1% and revenue per hundredweight decreased 1.6%.

“These results were driven by consistent and improved customer service, base rate increases, tightly managed costs and productivity gains,” said James Welch, chief executive officer at YRC Worldwide. “Additionally, our ongoing focus to improve price, freight mix and profitability has contributed to higher year-over-year revenue per hundredweight, excluding fuel surcharge, for 8 consecutive quarters at YRC Freight and 20 consecutive quarters at the Regional segment,” Welch added.

Welch said while YRC has made “significant strides” toward better profitability, it must balance the volume equation with strategy “to get the right freight at the right price” running through its networks.
“Our intent is to remain disciplined and true to this strategy,” Welch said. “We believe that reinvesting in our people, technology and equipment, combined with projected capacity constraints from regulations and eventually a stronger economic environment will bode well for us over the long term. Despite near-term headwinds from decreasing fuel surcharge revenue and an inconsistent industrial economy, we believe LTL pricing remains rational.”
In other first-quarter major LTL earnings:
Old Dominion Freight Line, the perennial leader in LTL profitability, suffered a slight drop in earnings but still very impressive. ODFL had $60.3 million net income on $707.7 million revenue, compared with year-ago earnings of $62.5 million on $696.2 million earnings. It’s OR dipped slightly to 85.9 from 85.1 in the year-ago quarter.
“Old Dominion produced solid results for the first quarter despite an operating environment that continues to be challenging,” ODFL Vice Chairman and CEO David S. Congdon said. “Our first-quarter revenue growth of 1.6% reflects an economy that remained sluggish and the impact of a 23.3% decline in fuel surcharges.”
ODFL yield (revenue per hundredweight) increased just 0.3%. Stifel Inc. trucking analyst David Ross called the LTL pricing environment “a little more competitive than originally anticipated.” ODFL management said pricing remains rational overall.
“First quarter is typically the toughest quarter to hold price due to is soft seasonal volumes, and we expect the pricing environment to stabilize in the next quarter or two with better volume comps,” Ross said in a note to investors.
UPS Inc. reported a bang-up quarter, with earnings of $1.143 billion on a 3.2 percent rise in revenue to $14.42 billion. UPS does not break out exact earnings of its UPS Freight unit, the nation’s fifth-largest LTL carrier.  Instead, it includes UPS Freight in its “supply chain and freight segment,” which had a 2.6 percent drop in operation profit on what UPS called “weak market conditions: in air freight forwarding and the LTL markets.
UPS’s supply chain and freight unit revenue increased by more than 10% to $2.4 billion. This was mainly due to the acquisition of Coyote Logistics in the third quarter of last year, UPS said.
UPS Freight LTL revenue per hundredweight increased 2.1% over the same period last year.  Total tonnage remains “challenged” by the current market conditions. UPS said, adding that the LTL business unit remains focused on “disciplined revenue management.”
Saia Motor Freight Line, the nation’s 10th-largest LTL company, reported a 16 percent drop in net income to $10.6 million on a 1.1 percent drop in revenue to $290 million in the first quarter. Saia’s operating income decreased by 17% to $17.6 million as its OR weakened to 93.9 compared with 92.8 in the 2015 first quarter. On the brighter side, Saia said its revenue per hundredweight jumped 2.1 percent in the quarter.
“While we were not able to match last year’s record first quarter earnings results, I am pleased with the trajectory of our productivity and expense control initiatives,” Saia President and CEO Rick O’Dell said.
“We continue to see benefits in the areas of dock productivity and maintenance expenditures, while maintaining service and advancing quality initiatives,” O’Dell added. “We also reduced purchased transportation expense, which represented 4.3% of revenue compared to 6.0% of revenue in the first quarter last year.”
Despite what O’Dell called “no noticeable improvement in the level of general economic activity,” it was able to win average rate increases of 5.3% on contractual renewals in the period,” O’Dell added.

About the Author

John D. Schulz
John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. John is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis.

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