Like other carriers that have reported fourth-quarter results, Werner Enterprises expects to see a better freight market by the back half of 2023.
The company’s outlook calls for a “relatively muted economic backdrop,” but management believes that as customers work through excess inventories and truck capacity continues to leave the market, truckload fundamentals will firm.
“Retail inventories are tough because, holistically, there are still issues out there and there are still people right-sizing their inventories,” Chairman, President and CEO Derek Leathers told analysts on a call Tuesday evening.
He said the retailers in the discount space that Werner works with are in “latter innings” of destocking while its other customers are in the “middle to late innings.”
“The back-half setup is for us to get to back to a world of inventory replenishment, peak freight movements, etc. … all of which will support our portfolio well,” Leathers added.
Werner (NASDAQ: WERN) reported adjusted earnings per share of 99 cents for the fourth quarter after the market closed Tuesday, which was 7 cents better than the consensus estimate but 14 cents lower year over year (y/y).
The result excluded several items netting 5 cents per share. The adjustments were tied to an insurance claim that is being appealed, valuation changes in equity investments and acquisition expenses, among other one-offs. Gains on the sale of property and equipment were 6 cents per share higher y/y in the quarter.
2023 guidance has some moving parts
Werner provided some numbers around 2023 earnings.
It expects to grow the total truck fleet between 1% and 4% y/y (up 3% y/y in 2022) with most of the additions landing in the dedicated offering. Dedicated revenue per truck per week is expected to be flat to up 3% y/y (up 8% y/y in 2022), with one-way revenue per total mile down between 3% and 6% y/y in the first half of 2023 (up 9% y/y in 2022). The expectation is that the rate profile in one-way improves in the back half of the year.
Management expects to see some relief in maintenance expenses as it lowers the average tractor fleet age from 2.3 years to 2.2. Increases in driver pay have moderated from midteen percentages to up only 4% in the recent quarter. Better safety performance last year should translate into a reduction in insurance expenses this year. Management said it also hopes to realize some cost synergies at the companies it has recently acquired and that it will be looking at general cost-cutting opportunities throughout the organization.
The 2023 guidance includes gains on sale of just $30 million to $50 million, compared with nearly $90 million in 2022. The change represents a 58-cent headwind to the $3.70 adjusted EPS number recorded in 2022. Also, a $20 million y/y increase in interest expense represents a 24-cent hurdle from 2022.
Q4 highlights
Total TL revenue was 13% higher y/y at $635 million. Werner added 200 trucks and 980 trailers through the acquisition of Baylor Trucking in October.
Dedicated revenue was 9% higher y/y as average tractors in service grew 4% and revenue per truck per week was up 5%. One-way revenue was up 2% as the truck count increased 7% due to the acquisition, with revenue per total mile slightly positive on a tough comp (up 19% y/y in the 2021 fourth quarter).
Higher costs and softer utilization weighed on the unit’s adjusted operating ratio. At 84.2%, the OR was 240 basis points worse y/y but 90 bps better than the third quarter.
Revenue from TL-related logistics, the bulk of Werner’s logistics segment, was up 20% y/y as shipments increased 34% and revenue per load fell 11%. Revenue in the period included an eight-week contribution from the acquisition of freight broker ReedTMS Logistics, which closed at the beginning of November. Excluding the acquisition, Werner’s TL logistics revenue declined 17% y/y.
The logistics segment recorded a 3.8% adjusted operating margin, which was 260 bps worse y/y.
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