Less-than-truckload carrier Saia managed to post a higher yield number in the fourth quarter of 2022 compared to the corresponding quarter of the prior year despite a drop in tonnage and shipments.
The mixed performance came as the company had already signaled lower shipments in an intra-quarter update. The end result was a 7.65% decline in total tonnage and 8.16% decline in total shipments.
But revenue per hundredweight, also known in LTL as yield, improved to $20.11 net of fuel for the quarter, up 6.46% from the $18.89 recorded a year ago. With fuel included, yield was up 14.3% to $25.42 from $22.24 in 2021’s fourth quarter.
But the higher yield was not enough to fend off the loss of volume, so the end result was an operating ratio (OR) of 85.9% compared to 84.2% a year earlier. That helped lead to a question on the analysts call that followed the release of the earnings: Can Saia get to its stated goal of an OR that begins with a seven?
“I don’t have a reason why not,” said Saia CEO Fritz Holzgrefe, according to a transcript. “We are marching on to that.”
Holzgrefe added that the “environment we’re in right now, it’s a little bit more challenging than it has been.” But he referred several times in the call to what he said is his company’s “best-in-class” level of service and that it “deserves an appropriate return.”
“And I think that operating in the mid-70s is our expectation or perhaps lower,” he added. “Certainly the bar has been set. So we’re going after it. I don’t know why we wouldn’t.”
The follow-up question to Holzgrefe’s declaration was answered by CFO and executive vice president Douglas Col about the likelihood of significant improvement in the OR in the first quarter. Given the normal challenges of the winter, Col said Saia anticipates an OR that would be “flat out of Q4 into Q1. That would make a lot of sense to us.”
One notable figure in Saia’s earnings was a decline in purchased transportation, dropping to $60.3 million from $70 million. Analyst Joe Chappell with Evercore ISI noted that it had declined “meaningfully” as a percent of revenue and asked whether it suggested a structural change in the use of purchased transportation.
Col said that given the 18 new terminals over the past two years, plus the plans to definitely open five this year and possibly more, “we’re going to continue to need PT as we come out of whatever slowdown we’re in here.” Moving more transportation to the internal network, according to Col, is driven in part because “we want to use our drivers and hang on to them. When business comes back, we’re going to need it.”
Saia recently put through a general rate increase (GRI) of approximately 6.5%, higher than most of its peer companies. As to how much of that the company will capture, Col said that “in a softer volume environment, you probably end up making some concessions in some lanes, for example, or with some really good operating customers. So historically, we say we hold on to about 80% of our GRI in terms of the yield that we capture.” But he said that capture number could be lower in a weaker market.
On contract pricing, Holzgrefe said the average contract renewal in the fourth quarter was 7.4%. Col noted it came on the heels of several quarters of double-digit increases.
While salaries, wages and other personnel costs were up from a year ago, they were down from the third quarter, dropping to $297.2 million from $287.77 million. In a quick analysis published by the transportation research group at Deutsche Bank soon after the earnings were released, analyst Amit Mehrotra noted that revenue declines from the third quarter were able to be offset in part by “cost mitigation.” “We would have liked to have seen Saia's wage costs down a bit more sequentially,” wrote Mehrotra but also noted that the drop in purchased transportation expenses “more than made up for the difference.”
Holzgrefe alluded to the cost savings in saying that Saia had “worked extensively” in the fourth quarter to “kind of resetting our profile to be able to be in a position that we’re a little bit more cost optimal. We feel a little better than kind of where our footing is now, what our productivity looks like.”
With the slowdown in volumes, that creates capacity in the company’s network. It led Andrew Cox of Stifel to ask whether some of that capacity might be filled by what he called “transactional freight,” away from contracted volumes.
Holzgrefe said “there are opportunities for us to go sell and available capacity on it.” But he made clear he did not see the company as an aggressive player in that space. “We’re not in the game of leading (pricing) on that,” he said. “Frankly, that’s not what is appropriate.” What’s appropriate, he added, is to “find a customer that understands that you’re going to get a great product from Saia. And they’re going to pay accordingly and that’s going to fit.”
“You won’t see us working on leading with price,” he said. “That’s not our game.”
Among other key numbers for Saia in the quarter: Revenue of $655.7 million was up 6.3%; operating income was $92.7 million, down 4.8%; the full year OR of 83.1% was 230 basis points better than the prior year; and diluted net income of $2.65 per share was 11 cents less than last year’s fourth quarter of $2.76.
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