Truckload Profits Grow in 3Q On Tight Capacity, Rate Hikes

This story appears in the Oct. 27 print edition of Transport Topics.

Large truckload carriers generally reported strong third-quarter profit growth last week, driven by elevated demand for freight hauling, tight capacity and strong rate increases.

Knight Transportation’s earnings jumped 67% from last year’s same quarter, while Werner Enterprises posted a 22% gain and Landstar System’s net income climbed 25.7% to a third-quarter record.

Covenant Transportation Group reported a slight decline in earnings, but that was due to an adverse cargo-claim judgment, which offset improved profitability in trucking operations.

“Higher demand in a recovering economy and tightening capacity have bolstered tonnage growth and helped drive stronger rate increases,” Bloomberg News analysts Lee Kaskow and Talon Custer said in an Oct. 20 note. “These factors, combined with declining diesel prices, should aid trucking revenues and margins.”

Landstar said net income for its quarter ended Sept. 27 rose to $36.8 million, or 82 cents a share, from $29.2 million, or 64 cents.

Knight’s net income rose to $25.1 million, or 31 cents a share, compared with $15.1 million, or 19 cents, a year earlier.

“The overall demand environment remained strong, while capacity continues to be tight,” CEO Kevin Knight said in the company’s report.

Meanwhile, Werner’s third-quarter profit rose to $26 million, or 36 cents a share, from $21.3 million, or 29 cents.

The carrier said it was “overbooked” throughout the quarter with more freight to move than trucks to haul it.

Werner attributed the strong freight environment primarily to tight capacity combined with a “gradually firming economy.”

“Truck capacity is being challenged by an increasingly competitive driver market, trucking company failures and heightened regulatory cost increases for truck ownership and safety; thus, we expect this favorable demand trend relative to constrained supply will continue,” the company said in its report.

Covenant’s net income slipped to $1.9 million, or 12 cents a share, from $2 million, or 13 cents, a year earlier, but the most recent quarter’s results included an after-tax charge of $4.6 million, or 30 cents a share, associated with a court judgment in September stemming from a cargo loss in 2008.

Excluding the financial effects of that judgment, all three of Covenant’s truckload subsidiaries achieved “significant” improvement, the company said.

“Throughout the third quarter, we experienced a significant increase in demand, particularly in our expedited team-driver operations and our dedicated contract automotive offering,” CEO David Parker said in the carrier’s report.

All carriers to report so far posted year-over-year revenue growth in the third quarter.

Knight’s revenue climbed 13.5% to $271.5 million, Werner’s increased 8% to $552 million, Landstar’s surged 21.3% to $819 million and Covenant’s grew 3.9% to $177.6 million.

“Revenue, gross profit, operating income, net income and diluted earnings per share were all third-quarter records,” Landstar CEO Henry Gerkens said in the company’s report. “Demand for Landstar’s truck transportation services in the 2014 third quarter continued to be very strong, as the number of loads hauled via truck increased 11% over the 2013 third quarter.”

Revenue per load hauled by truck rose 10% from a year earlier.

Werner said the freight market dynamics began showing year-over-year improvement in November 2013 and has continued for the past 11 months, including the first three weeks of October.

The company also said it made “good progress” on implementing sustainable rate increases to recoup cost increases from rising equipment prices, a shrinking supply of qualified drivers and an “increasingly challenging” regulatory environment.

In a note on Werner’s results, Stifel, Nicolaus & Co. analyst John Larkin said it was the company’s first positive year-over-year comparison for earnings per share since the second quarter of 2012.

In an investors note, Thom Albrecht of BB&T Capital Markets said Knight benefited from a spot market that was strong year-over-year, although “somewhat mellow” sequentially.

He also said pay increases in March and April and enhancements to Knight’s bonus program last year “appear to have stabilized the driver situation for the near term.”

A week earlier, J.B. Hunt Transport Services reported profit growth for the quarter, while refrigerated carrier Marten Transport Ltd. posted a slight decline.

Hunt’s third-quarter net income rose to $102.4 million, or 87 cents a share, from $89.5 million, or 75 cents. The intermodal carrier’s quarterly revenue rose 12% to $1.6 billion.

However, Marten’s net income slipped to $7.7 million, or 23 cents a share, from $8 million, or 24 cents. Revenue grew 2.7% to $171.6 million.

Swift Transportation Co., Universal Truckload Services and Forward Air Corp. also were expected to report third-quarter results late last week, after Transport Topics’ deadline.

J.B. Hunt ranks No. 3 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada. Landstar ranks No. 10, Werner is No. 14, Knight is No. 31, Covenant is No. 43 and Marten is No. 45 on the TT for-hire list.