A few months ago, Werner Enterprises released the results of a strong second quarter, and trucking stocks counter-intuitively cratered in response as investors feared a top had been reached.
The truckload carrier’s third quarter earnings report was positive once again and show no sign of a top having been reached. Revenues of $629.7 million were up 19% from the corresponding quarter of 2017, and were also up more than $10 million from the second quarter that some investors feared was a high point.
There was almost nothing negative to find in Werner’s earnings report. Revenue net of fuel surcharges was up 17% from 2017’s third quarter, which is slightly less than total revenues that include the surcharge income. The $409 million in revenue net of fuel surcharge was also more than the approximately $395 million posted in that category during the second quarter.
Werner’s operating ratio improved to 87.9% with the fuel surcharge and 85.9% without. That is an improvement of 380 basis points with the surcharge and 460 basis points without, a significant jump.
The increase in that operating ratio helped propel net income to $47.5 million, up a whopping 111% from the prior year.
Werner also gave a sneak peak into how things are going as the fourth quarter has begun. “Much stronger than normal” is how Werner described one-way trucklod fleet demand in July, and “stronger than normal” was the term used to describe demand in August, September and October.
Werner’s average trip length dropped to 451 miles from 469 miles, which the company ascribed to a rise in traffic in the company’s Dedicated sector. Average miles per truck in the One-Way Truckload sector was up for the quarter, though specific numbers were not disclosed.
In other highlights from the earnings report, Werner said:
–Its driver turnover rate was one of the lowest it has had in the last 20 years.
–It significantly shifted a lot of miles to company-owned trucks. Miles drive by those trucks were up about 8 million miles while miles driven by independent contractors dropped about 2 million miles. As a result, there was a slight decline in the percentage of expenses accounted for by the rent and purchased transportation line item, though total dollars were higher.
–Although there are some signs the used truck market may have hit a peak, Werner said the market for its used trucks has “improved” over the last few quarters.
Although Werner does not hold a conference call with analysts, the team at Deutsche Bank led by Amit Mehrotra had a follow-up call with Werner executives after the earnings. It resulted in Deutsche raising its projections on earnings per share at Werner going forward, up 1 cent in 2019 to $2.65 per share, and a more significant increase in 2020 to $2.81 from its own estimate of $2.63 and a consensus view of $2.72.
“At a high level, October trends (as measured by load-to-truck ratio) represent the 3rd best October in over a decade, and we believe at least +5% revenue per total mile is achievable in 2019- reflecting current contractual rate increases in the 9-11% range,” Deutsche said in a note to investors released early Friday. “While we continue to expect headwinds on utilization in ’19 (miles per tractor down 1-2%), this should be more than offset by lower wage inflation- which we expect to moderate to +5% per total mile vs. +15% in 2018.”