Truckload Profits Solid

July 26, 2006
Heartland Express opportunistically sold a number of trailers and tractors in the second quarter, producing some gains in quarterly profits that wont

Heartland Express opportunistically sold a number of trailers and tractors in the second quarter, producing some gains in quarterly profits that won’t be repeated in coming quarters say both Morgan Stanley and Stifel Nicolaus analysts. Removing the impact of the sale does not diminish Heartland’s “ever-impressive ability to control costs,” according to Morgan Stanley’s Chad Bruso.

Heartland now plans to spend an estimated $30 to $35 million to pre-buy tractors ahead of the 2007 emission standards. Those tractors won’t be subject to the new engine requirements and, therefore, won’t suffer some of the efficiency losses associated with the lower-emission engines. Bruso expects Heartland to mimic its 2002/2003 strategy and park many of the tractors while it gradually introduces them into its fleet throughout 2007. This should result in some modest fleet growth, he concludes.

Stifel Nicolaus’ John Larkin notes that while Heartland reported a 75.2 operating ratio (OR), its OR after removing the effects of the one-time sale stands at 82. This is below the 80.4 achieved in the same quarter last year, but is still strong. Both analysts expect the carrier’s operating range to remain in the 80s, in part because of the relatively young fleet it operates. Tractors average 1.4 years old and trailers 2.8 years.

JB Hunt’s results tracked 9.1% higher for its 2006 second quarter than the prior year period. Intermodal is still the darling at Hunt, rising 14% in revenue and producing 13% better operating income for the quarter. As the company enters the second half of the year, it has added equipment in its intermodal operation which should put it in a strong position with the continued driver shortage and the start of the peak shipping season.

Results in Hunt’s dedicated contract services group were affected by a $2.3 million positive claims reversal and two adverse claims totaling $1.2 million. This put the carrier’s operating ratio at 88.3. The truck segment reported $2.5 million of extra fuel expenses not recovered by surcharges in the second quarter, which left its OR at 89. Stifel Niclaus’ Larkin sees strong growth at Hunt’s intermodal group and steady performance at its other units once the effects of the claims and some start-up costs for new accounts are removed. That is, the fundamentals of the various business units have not deteriorated.

Knight Transportation reported a 17.2% increase in quarterly revenues excluding fuel surcharges. The company increased the average number of tractors operated by 14.7% during the quarter and increased loaded miles by 4.9%. The company’s OR came in at 78.7, despite a 3.9% decline in asset utilization.

Landstar System, with its asset-light strategy, increased revenues 19% to $644 million for the quarter. Its OR improved to 92.5.

Marten Transport Ltd. saw revenues rise 16.9% through a combination of a 6.1% increase in freight revenues, 61% increase in fuel surcharge revenues, and a 134% increase in non-freight revenues. The company’s OR dropped to 90.8.

Werner Enterprises Inc. reported revenues increased 6.4% in the second quarter. “The company continues to effectively allocate capacity to its highest yielding accounts and adjust prices to recover at least all of the company’s unit cost increase,” said Stifel Nicolaus’ Larkin.

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