USX’s Q3 was weak, but analysts appear open to CEO’s long-term view

Fuller said Variant exited the third quarter with 1,328 tractors, which was an 11% growth sequentially, less than recent quarters. He said the pace of new hires and new trucks carrying the Variant brand picked up pace late in the third quarter. Since the end of the third quarter, Fuller said Variant has added approximately 100 trucks.

More importantly, he said, Variant’s growth outpaced the attrition in the legacy over-the-road company for the first time. Variant is on track to end the year with 1,500 tractors, which Fuller has said for months was the company’s target. 

Variant, as it exited the third quarter, had an annual run rate of approximately $250 million, Fuller said.

He said a key metric for internally measuring Variant performance versus the legacy business is average revenue per tractor per week. For the consolidated truckload segments, that figure rose to $4,012 from $3,843.

While he did not disclose the differences between Variant and the legacy division in that category, he said, “We are still moving in the right direction. That is an item that we really look at.”

Another part of the transformation at U.S. Xpress is its traditionally laggard brokerage division, which operates as U.S. Xpress Technologies. Fuller touted the performance of that division, which posted operating revenue of $90.8 million, growth of 62.3% from a year ago. The group still posted an operating loss of $1.45 million, but a year ago, that red ink totaled $4.5 million. 

“We are in the early innings to achieve a scalable digital marketplace,” Fuller said.

Analysts on the call did not ignore the company’s disappointing financial performance, however.

One analyst contrasted U.S. Xpress’ performance with that of other truckload carriers in the third quarter, and noted that while Variant may be on track for 1,500 trucks by the end of the year, the growth is not showing up in the company’s margins.

Eric Peterson, the company’s CFO, continued to drive home the message of long-term growth but still tried to assure the analysts that things would get better soon.

For example, both he and Fuller said significant increases of 7% or more in contracts for the dedicated division mostly went into effect near the end of the quarter, but pay increases for drivers were already in effect starting near the beginning of Q3.

A deterioration in the company’s adjusted third-quarter truckload operating ratio to 97.8% from 94.1%, Peterson said, could be attributed in part to a reduction in the number of team drivers, as new trainees are being kept out of the legacy business and going into Variant training.

But the main message was that this will all take time. “We are focused on the longer term, which means that our quarterly earnings are not as focused on the next 90 days as where we are headed,” Peterson said. 

He said U.S. Xpress has been through the “hard point … where the teardown of the legacy business is losing the race.”

As far as the company’s performance, expenses again were a key culprit in the third quarter as the company posted a second sequential quarterly decline in operating income.

Operating income for the truckload carrier fell to $6.635 million from $15.89 million in the third quarter of 2020, a decline of $9.25 million. In the second quarter, the drop in operating income was to $8.9 million from $16.28 million.

Purchased transportation costs rose $33.1 million, to $159.1 million from $126 million a year ago. Purchased transportation costs at U.S. Xpress exceeded sales, wages and other compensation, which came in at $158.9 million, up from $137.5 million last year.

Purchased transportation exceeded salaries in the second quarter as well.

Revenue at the company of $491.1 million exceeded consensus by $11.5 million, according to SeekingAlpha. Fuel and fuel taxes were $46.7 million, while fuel surcharge revenue was $39.3 million, leaving about $6.4 million in U.S. Xpress fuel expenses that were not covered by the surcharge.

U.S. Xpress kept most other key expenses in check. Insurance was up less than a half-million dollars; general & administrative costs declined about the same. 

On a net income basis, U.S. Xpress posted a loss per share of 11 cents, in part because of a charge of 18 cents per share on what U.S. Xpress called an “unrealized loss on a strategic equity investment.” U.S. Xpress earned 22 cents per share in the third quarter of last year. 

The performance in the third quarter, Fuller said, “is primarily as a result of a conscious decision to build a foundation for a company that can build its revenue over the next four years.” Given that, U.S. Xpress remains in a period where its fixed costs will be high relative to its volume, he added.

There were several questions on the analyst call regarding the upcoming Occupational Safety and Health Administration mandate that would require vaccination at companies of more than 100 workers. Fuller said it is “something we don’t want to see” and that he hopes for a truck driver carve-out. He also said there are efforts that are not visible to  the trucking industry to get some sort of relief from the mandate, which he said could otherwise cost the industry as much as 10% of its driver pool.

Disclosure: FreightWaves founder and CEO Craig Fuller retains ownership of U.S. Xpress shares through his family trust.

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