Less-than-truckload carrier Saia Inc. has big growth plans in 2024 after picking up 28 terminals from bankrupt Yellow Corp.’s estate. It outlined a $1 billion capital expenditures plan in its fourth-quarter report, which if executed would represent nearly one-third of its annual revenue.
The acquired terminals (17 owned and 11 leased) represent $244 million of the capex budget. Saia plans to open 15 to 20 of those facilities this year. Some of the additions are expected to be accretive to earnings near term, especially in areas where it is moving out of partner facilities used in an interline arrangement into owned service centers. The company will need to put some money in the acquired sites before they are ready to handle freight again. Saia also plans to relocate approximately 10 of its current locations into larger facilities.
In total, the outlay on real estate is expected to be $550 million.
Saia has about 20% excess capacity in the network currently and sees the incremental investments as allowing it to take on business wins without having to be reactionary with infrastructure.
It opened 25 terminals over the past three years. If the new sites come on line as planned, it would have 210 to 215 terminals in use by year-end. Including ongoing efforts to expand and relocate other facilities, the company’s door count could be 12% to 14% higher by the end of the year compared to 8,700 doors in use at the end of 2023.
“These terminals, once opened, will allow us to provide direct coverage in new markets, add density in existing markets and serve as replacement terminals for some of our existing leased and owned facilities,” said Fritz Holzgrefe, Saia’s president and CEO.
Saia will add to its fleet to accommodate higher volumes with a focus on trailer additions to improve efficiency. It will also reduce the number of equipment leases it has, which were quickly taken on following Yellow’s collapse, opting for asset ownership instead. Equipment spend is expected to be $400 million to $450 million.
Capex for IT will be approximately $50 million. Saia recorded total capex of $437 million last year (15% of revenue) in comparison.
As part of the growth plan, Saia has increased head count by 1,500 (12%) to nearly 14,000 since the end of the second quarter when it appeared Yellow was likely to close.
Saia was the second LTL carrier this week to voice big growth plans. Old Dominion Freight Line (NASDAQ: ODFL) said Wednesday it was carrying 30% excess capacity and that it had grown head count for the first time in six quarters.
Most analysts have applauded the fact Yellow’s terminals are being passed into the hands of carriers that are more price disciplined. But Morgan Stanley (NYSE: MS) analyst Ravi Shanker believes the large investment in capacity could upset the industry’s favorable supply-demand balance, which, unlike the truckload market, is driven by high barriers to entry.
“With SAIA at 20% excess capacity after absorbing the initial YELL volumes, ODFL at 30% and others arguably even higher, it is difficult to expect supernormal pricing when there is so much excess capacity to begin with and a lot more capex going in, in our view,” Shanker said in a Friday note to clients.
Q4 by the numbers
Saia (NASDAQ: SAIA) reported fourth-quarter earnings per share of $3.33, which was 13 cents better than the consensus estimate and 68 cents higher year over year (y/y). A lower tax rate compared to last year was a 5-cent tailwind.
Revenue of $751 million was 15% higher y/y as tonnage increased 8% and revenue per hundredweight, or yield, was up 7%. Revenue excluding fuel surcharges was 21% higher and yield (excluding fuel) was up 12%. An 8% decline in weight per shipment drove some of the increase in the yield metric.
Shipments per day were 18% higher y/y but down 2% from the third quarter. Yields were 5% higher than in the third quarter but weight per shipment was down 3%.
Tonnage during the quarter was 7.8% higher y/y in October, 9.2% higher in November and 6.8% higher in December. December had the benefit of an easy prior-year comp (down 13%). Tonnage in January was up just 3.3% y/y but inclement weather, which idled several terminals for days, was a detractor.
Saia pulled forward several contracts in the quarter, renewing 50% more agreements in the period than it did last year. Those negotiations resulted in an average price increase of 8.7% y/y. The company expects revenue per shipment to increase in the low-single-digit range during 2024.
The carrier implemented a 7.5% general rate increase at the beginning of December, which positively impacted just one month during the quarter.
An 85% operating ratio was 90 basis points better y/y. The period contended with a 210-bp increase (as a percentage of revenue) in salaries, wages and benefits due to the higher head count and a 4.1% wage increase implemented in July.
Saia’s OR normally improves by 50 bps to 75 bps from fourth to first quarter, which management believes is still achievable even with the poor weather to start the year. It’s guiding 100 bps to 200 bps of y/y OR improvement for full-year 2024.
Shares of SAIA were up 12.3% Friday at 12:46 p.m. EST compared to the S&P 500, which was up 0.7%.
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