October 25, 2010 11:00 AM, EDT

Truckload Profits Rise Sharply as Rate Increases Accelerate

By Rip Watson, Senior Reporter

This story appears in the Oct. 25 print edition of Transport Topics.

Third-quarter earnings rose sharply at four publicly traded truckload companies, as they were able to accelerate the pace of rate increases in a steady freight market.

Net income climbed at least 27% at Werner Enterprises Inc., Knight Transportation Inc., Marten Transport Ltd. and Forward Air Corp. as rates rose by 4.2% to 13%.

“Freight market trends continued to be good in the third quarter and were better than those in third quarter 2009,” Werner said in its Oct. 18 earnings announcement, which showed profit up 27% to $24.2 million, or 33 cents a share, powered by a 4.2% increase in rates measured in revenue per mile. Overall, revenue climbed 8% to $463.2 million.

Knight CEO Kevin Knight described third-quarter demand as “relatively consistent” in an Oct. 20 statement that also showed a 27% rise in earnings to $16.7 million, or 20 cents a share. Revenue per mile rose 5% at Knight as total revenue rose 11% to $191.3 million.

Marten’s profits surged 58% to $5.5 million, or 25 cents a share. Revenue per tractor per week, another measure of rates, jumped 13% to $3,084. Company revenue dropped 1% to $128.7 million as the fleet size and length of haul declined.

Forward Air Corp.’s net income more than doubled to $8.9 million, or 31 cents a share. Revenue rose 18% to $121.5 million, and its rates measured on a per-pound basis climbed 5.9% for airport-to-airport moves by truck.

The rate of year-over-year price increases improved from the second quarter, when Werner’s was 2.2%, Knight’s was 4.1%, Marten’s was 4.7% and Forward Air’s was 5.7%.

Werner, Omaha, Neb., which ranks No. 13 on Transport Topics 100 list of the largest for-hire carriers, attributed the improvement to “rising contractual pricing, higher spot market rates and fewer empty miles.”

“Pricing power is already shifting from shippers to carriers, and this developing trend should accelerate as 2011 evolves,” Stifel, Nicolaus & Co. analyst John Larkin said on Oct. 20. His report tied higher rates to continued steps by fleets to avoid equipment purchases that could upset the current supply/demand balance in the market.

While third-quarter earnings were buoyed by improving rates, there was concern about fourth-quarter volumes.

“Freight trends thus far in October have softened from the third quarter of 2010,” Werner said in its Oct. 18 earnings announcement.

The company said that “larger shippers in our network may be shifting freight shipment volumes to large carriers in an effort to secure capacity going into 2011. The softening seems to be driven more by smaller company shippers being more cautious with their inventory and overall volume projections.”

Comments from Werner about freight volume trends were not unique among carriers, analysts said.

Ed Wolfe of Wolfe Trahan &?Co. said that Werner’s statement about early fourth-quarter freight volumes was consistent with what truckers were saying at American Trucking Associations’ Management Conference & Exhibition.

Jason Seidl, a Dahlman Rose & Co. analyst, also observed that Werner’s comments about softer demand echoed other truckload carriers on a recent conference call.

Thom Albrecht, an analyst at BB&T Capital Management, said a slowdown in freight volumes at the end of September probably shaved 2 cents a share off Marten’s earnings.

On the other hand, Bruce Campbell, Forward Air’s CEO, said that ‘”volumes for the quarter and into October steadily increased in a peak-like fashion after a midsummer lull.” Forward Air ranks No. 52 on the for-hire TT 100.

Knight, Phoenix, and Marten, Mondovi, Wis., didn’t offer comments about the fourth quarter.

Each company credited diversification into services such as intermodal and brokerage for positive contributions to third-quarter results.

All four companies bettered their trucking operating ratio both year-to-year and compared with the previous quarter.

Knight improved to 83.2, Forward Air reached 85.1, Werner went to 88.8 and Marten finished at 91.5.