Two executives from LTL carrier Saia somehow found a way to spend 60 minutes on a quarterly conference call with analysts talking about how the likely demise of Yellow Corp. is going to affect their business without actually mentioning Yellow by name.
CEO Fritz Holgren and CFO Douglas Col used terms like “the situation” and “the opportunity” in discussing two major themes that were on the minds of the analysts: What impact has the pending closure of Yellow had on Saia’s (NASDAQ: SAIA) business in recent weeks? And what impact will it likely have once that capacity disappears permanently?
Holzgrefe, on Friday’s call to discuss the company’s second-quarter earnings, said July shipments were up 5%, and while he didn’t specify the comparison point, the intra-quarter reports that Saia and other LTL carriers release usually at the start of the third month of each quarter are on a year-to-year comparison. The tonnage volume is up 2.5%, he added.
After noting the usual slow period for freight movement around the Fourth of July holiday, Holzgrefe said Saia has “seen the business levels trend more favorably in the last two weeks.”
The normal seasonal “step-down” between June and July is not being seen this year, according to Holzgrefe. But it won’t be until early September that a better picture of market trends from the impact of Yellow’s (NASDAQ: YELL) likely closure will be fully seen, he added.
He did not predict where the company’s operating ratio might come in for the third quarter except to note that traditionally the OR for Saia deteriorates 150 to 200 basis points going from the second to third quarters.
Holzgrefe and Col had multiple opportunities to get specific about the impact of a Yellow closure but stayed vague while acknowledging the “opportunity.”
“If one of the providers exit, certainly that freight gets distributed around to others,” Holzgrefe said. “That’s an opportunity for us to provide that service to the customers and sell and earn and keep that business.”
But he said Saia is “not in the market to chase volume. We’re in the market to find profitability.” The LTL carrier will “pick up freight if we think it makes sense over time.”
The Yellow disappearance, should it occur, will come at a time when Col said LTL “stands to benefit over some of the supply chain trends in the next decade,” specifically mentioning nearshoring “and the role of LTL to play in smaller, more frequent shipments.”
“We think LTL is well positioned to continue to benefit from the growth of residential deliveries and final-mile activities,” he added.
Asked about slack capacity in the Saia network to pick up new business coming out of Yellow, Holzgrefe said Saia has about 15% spare capacity across the network, though that number will fluctuate according to location.
One area where Holzgrefe spoke with a certain degree of specificity was in response to an analyst question about purchased transportation and how Saia might utilize it to meet demand from Yellow customers. Purchased transportation at Saia plummeted to $46.7 million in the second quarter of 2023 from $78.2 million a year earlier.
“We feel pretty good flexing our purchased transportation up and down as we need to to meet the service requirements of our customers,” Holzgrefe said. While the company has been driving fewer miles in recent quarters due to the weaker freight market, Holzgrefe — without mentioning Yellow — said that as Saia “ramps back up to more of a growth mode, you’ve got to be able to scale that linehaul network.”
“And that means you’ve got to fully utilize the drivers, and with these new markets, we have the opportunity to scale that and add drivers, and that’s good,” he said. But before that can happen, the company will “need to utilize our purchased transportation partners.”
Answering a question about whether Saia is seeing particularly aggressive pricing from companies looking to snag former Yellow business, Holzgrefe demurred on a firm answer except to say that “we’re probably still early innings.”
But he did say that “volume does not generate an incremental return unless you get appropriate pricing.”
And even with the decline in volumes in recent months, LTL pricing has been marked by “a lot of discipline. So I don’t anticipate any price-led volume chase,” Holzgrefe said.
In the middle of a weak freight market, Saia turned in a performance that did not reflect any sort of broad downturn.
Various key metrics showed a year-over-year decline but not by any massive amount. Saia’s operating ratio weakened to 82.7% from 82.4%. That 230 basis point decline was less than the 280 bps that Old Dominion Freight Lines, the industry leader, saw in its own second-quarter performance.
Net of fuel, Saia’s yield, more formally known as revenue per hundredweight, actually improved 2.7% to $19.96 from $19.44. Yield including fuel was 4.8% less, dropping to $23.85 from $25.05.
The weak freight market was not evident in tonnage figures. Total tonnage was down just 1.7% to 1.42 million pounds from 1.446 million pounds. Total shipments declined 3.8% to 1.97 million. Pounds per shipment was up 2.2%, to 1,443 pounds.
In an analysis published by the transportation team at Deutsche Bank led by Amit Mehrotra, the performance of Saia was reported as “very strong,” noting that its earnings of $3.45 per share was 4% better than the consensus forecast and 2% more than the Deutsche Bank model.
“But the numbers beneath the headline were even more encouraging,” Deutsche Bank wrote. “We note, the company dropped over 60% of its sequential revenue growth to the bottom line. This is very impressive given the sequential fuel headwind, and highlights the positive impact the company’s network expansion is having, in our view, together with strong management execution.”
Declining fuel prices are considered a headwind in LTL given the structure of that industry’s fuel surcharge, which is different from truckload. The Department of Energy/Energy Information Administration’s weekly average retail diesel price, which serves as the benchmark for most fuel surcharges, opened the first quarter at $4.583 per gallon and fell to $4.128 per gallon at the end of March. By the end of June, that number stood at $3.201 per gallon.
Sequentially, Saia’s performance metrics were mixed. The company’s first-quarter OR was 85%, 230 basis points worse than the second-quarter figure. But first-quarter yield net of fuel was $20.15, compared to $19.96 in the second quarter.
Sequentially, total operating revenue in the second quarter was $694.6 million. That was down from $745.5 million a year ago but up sequentially from $660.5 million in the first quarter.
“Total revenue was down only 6.8% while fuel surcharge revenue fell by more than 30%,” Holzgrefe said in the prepared statement released by Saia with the earnings. “Strong core execution helped to moderate tonnage declines year-over-year. Declining fuel costs helped offset cost trends.”
Operating expenses declined to $574.3 million in the quarter, down from just under $600 million a year ago. One thing that didn’t decline: salaries, wages and benefits, which were $311.89 in the second quarter compared to $295 million in the second quarter of 2022. Sequentially, those compensation costs rose from $299 million in the first quarter. During the call, Col said Saia is starting to pay hiring bonuses for the first time in “several quarters.”
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Steve J
Your online publication along with these non-union companies have been like vultures during this whole process of yellow closing, you are non – union promoting and now that this company is dead so will be a lot of their older employees and family members who relied on their good insurance benefits ! goods will cost more to businesses and consumers, I’m not saying it’s your fault that they closed but you showed your true colors that you were for it more than against it
Brian
I work at a distribution center for a large retailer. Yellow always had the best load quality of the LTL companies. In my opinion the worst carrier in regards to load quality is Central Transport.
Bill King
SAIA has no integrity. They do not take care of their employees or their customers.
1 example they sell of food items that shippers instructed them to donate.
Feel free to contact me for details and other examples.
TCS53
All LTL carriers will get a bump in freight but it’ll be short lived. Happens every time somebody closes its doors. Most shippers have already moved on to someone else.
Francis w Gallagher
Make sure every UPS employee thanks a Yellow employee . Because we were collateral damage so they could get there contract.
Francis w Gallagher
Yes and Saia will not hire a union employee. I filled out a application this week and got a email back thanking me for applying but we are going in a different direction. I been driving a truck for 34 years there’s no one more qualified than me.
Bradley
Good luck, Charley. Maybe Saia is hiring?
Charley
Yellow has officially shut their doors. I worked for yellow and I just got off the phone with my terminal manager and he said we are done.