LTL Quarterly Results Worsen as Freight Levels Remain Low

This story appears in the May 4 print edition of Transport Topics.

Earnings at publicly traded less-than-truckload companies took a beating in the first quarter, as carriers competed fiercely to wrest freight from a dwindling market still mired in recession, a review of the companies’ financial reports shows.

Yield, or revenue per hundredweight including fuel surcharges, fell across the board, and operating ratios at every public LTL deteriorated. Only one carrier said it remained profitable in the quarter.

“Industry conditions during the first quarter of 2009 continued to reflect the effects of the recessionary economic environment on freight demand, and pricing pressure was as severe as we have ever experienced,” said Earl Congdon, executive chairman of Old Dominion Freight Line Inc.

During the quarter, YRC Worldwide, the largest public LTL, completed the combination of its two main operating companies but posted the second largest quarterly loss in the company’s history.

Just after the quarter ended, Arkansas Best Freight, the other unionized national LTL, said it would cut 127 driving jobs as part of a network realignment.

Of the eight publicly held LTLs, only Old Dominion said it re-mained profitable during the first quarter. However, the Thomasville, N.C., carrier’s earnings plummeted 62% year-over-year to $4 million, or 11 cents a share.

Old Dominion’s yield, a measure of LTL pricing, declined 8.8% to $12.57. Operating ratio, expenses as a percentage of revenue, slipped 2.3% to 96.6, the company said in its first-quarter earnings report.

Meanwhile, YRC Worldwide, Overland Park, Kan., said it had an operating loss of $415 million, or $4.34 a share, in the first quarter. Even excluding “significant charges” related to the integration of the Yellow and Roadway networks, YRC lost $251 million, or $2.63 a share.

At YRC’s national LTL unit, yield fell 6.5% to $22.73. Its national unit’s operating ratio soared to 129.3, a jump of more than 28%, compared with a year earlier.

Yield suffered the most at Con-way Freight, where revenue per hundredweight fell to $16.04 from $18.38 a year earlier. Likewise, Con-way’s operating ratio worsened 8.9% to 104.1.

Company reports in the first quarter showed a steady worsening of previous quarters’ trends. Operating ratios above 100 became the norm rather than the exception. When Transport Topics surveyed fourth-quarter LTL earnings three months ago, three LTLs had managed to hold their operating ratios below the break-even point.

In the first quarter, yield and OR at publicly held LTLs declined, on average, by 7% and 7.2%. Those trends compare with average yield and OR declines of 1.7% and 3.7%, respectively, in the fourth quarter.

Independent stock analyst Edward Wolfe saw no sign of relief on the horizon.

For LTLs, Wolfe said that he expects “continued massive operating losses throughout 2009 likely into 2010, with few catalysts for improvements.”

Meanwhile, announcements of cost-cutting measures pervaded first-quarter earnings reports, even as the latest economic news revealed that truck tonnage in March dropped to a seven-year low, and the U.S. economy in the first quarter barely improved upon the 6.3% contraction re-corded in the final quarter of 2008 (see story, p. 1).

YRC Worldwide still targets $240 million in annual savings from a 10% pay reduction for its Teamsters union employees. That initiative saved the company $90 million in operating costs in the first quarter, said Timothy Wicks, YRC's chief financial officer.

Also during the quarter, YRC paid $36 million in severance costs to eliminate about 1,700 nonunion jobs. Of those cuts, 800 related to the integration of the company’s national LTL companies. However, 900 jobs were eliminated because of lower volumes. Wicks said that those job cuts could save the company $70 million annually.

Executives at ABF Freight said the company’s planned realign-ment of its longhaul network would improve tractor utilization, shorten transit times and reduce costs. However, ABF declined to quantify potential savings.

Regarding its Teamsters union workforce, an ABF spokesman said that “we continue to explore various alternatives with the Teamsters regarding additional ways to improve our competitive position,” but he would not elaborate.

Con-way Freight parent Con-way Inc., San Mateo, Calif., said it plans salary and wage cuts that could save the company $100 million to $130 million in 2009.

Saia Inc., the Duluth, Ga., parent of Saia Motor Freight, cut wages for linehaul drivers by 5% and salaries for managers by 10% on April 1. In February, Saia suspended matching contributions to employees’ 401(k) savings plans.

Vitran Corp., Toronto, initiated a 5% pay cut for all employees on April 13.

At least one privately held LTL also reduced its corporate head count during the quarter.

A. Duie Pyle, a 600-truck carrier in West Chester, Pa., eliminated 52 positions earlier this month, company President Stephen O’Kane told TT.

“All the same pricing pressures that exist in the public sector exist in our company,” O’Kane said.

One analyst warned that in the current economy, efforts to trim costs might have only a limited effect on results.

“Cost-cutting only goes so far when revenues are in a free-fall,” said Thom Albrecht, who follows trucking stocks for Stephens Inc.