Management from the nation’s largest flatbed carrier, Daseke Inc. (NASDAQ: DSKE), attempted to temper the excitement around the company’s third-quarter earnings outperformance during a conference call on Friday.
The Addison, Texas-based company reported earnings per share (EPS) of 22 cents, which significantly outpaced analysts’ expectations calling for a modest loss in the period. Excluding costs related to the transformation of the business, the carrier reported record adjusted EPS of 31 cents.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 37% year-over-year, excluding results from oil rig transportation unit Aveda, which has been divested.
Management noted that the third-quarter result benefited from roughly $15 million in EBITDA related to high-margin freight in its specialized segment. The high-security cargo and wind energy projects the carrier had in the quarter are not likely to be as strong next year. Additionally, the company is entering the seasonally weakest part of the year, the fourth and first quarters.
Management said October has been “decent” compared to historical seasonality and that the company’s underlying business, excluding the complex projects completed in the third quarter, should continue to improve in 2021. Improvement in the construction market has resulted in increased shipments of roofing supplies, gypsum and commercial glass, but management said that the larger industrial markets remain subdued.
Total revenue declined 17% year-over-year to $376 million, down only 6% when excluding Aveda. Freight revenue per tractor increased 12%, excluding Aveda, in the specialized segment, with the flatbed unit seeing a 1% increase.
Daseke’s consolidated adjusted operating ratio (OR) was 90.9%, 610 basis points better year-over-year. Rolling up its separately operated flatbed companies as well as headcount and equipment reductions drove the improved performance.
Management said an improving rate environment is likely next year but it remains to be seen how robust it will be. The carrier, like most, is working to limit driver turnover, which was only 62% in the quarter. In any event, rate increases will need to be large enough to cover driver cost inflation and $2 million per quarter in increased insurance expense to keep the OR-improvement story moving.
The company’s longer-term OR goal remains sub-90%.
Daseke ended the quarter with $190 million in cash and $83 million available on its revolving credit facility. Total debt was $689 million, just under $500 million net of cash. Net debt-to-adjusted EBITDA leverage ratio declined to 2.6x from 3x in the second quarter. Net debt has been reduced by $135 million over the last year.
The company has $25 million to $30 million remaining in 2020 net capital expenditures (capex). Management expects a normal capex replacement cycle in 2021, amounting to approximately $75 million to $80 million.
Shares of DSKE are up more than 7% in late trading compared to the S&P 500, which is off 2%.