Werner Enterprises Inc. (NASDAQ: WERN) reported non-GAAP adjusted earnings per share of $0.63, $0.01 shy of the consensus estimate, but $0.02 better than last year’s report.
On the call, management said that freight demand in its one-way truckload (TL) offering was lower than normal for July. The combination of lackluster freight demand and excess capacity resulted in management lowering guidance for revenue per total mile in one-way TL to a range of -3 percent to flat (from growth of 4 percent to 8 percent). While the forecast was lowered, management noted that contractual rate increases had been occurring in the 4 percent range compared to last year.
For the remainder of the year, pricing will likely be under pressure given tough comps from 2018, rate weakness in the spot market and a lack of project-related freight versus last year. Currently, WERN only sees 10 percent of its one-way miles coming from the spot market, 5 percent of total miles. Looking forward, management believes that increased regulatory compliance and a very tough TL spot market could force capacity to exit the industry and provide a catalyst for improved pricing in 2020.
Earnings results
WERN reported revenue of $627.5 million, up 1 percent year-over-year as trucking revenue net of fuel surcharge increased 4 percent to $411.5 million and logistics revenue declined 2 percent in the period to $130.9 million.
The company’s one-way TL division reported a 1.5 percent increase in average tractors to 3,379 units with a 6 percent decline in revenue per tractor per week to $4,195. The dedicated fleet grew 8 percent to 4,558 average tractors in service with revenue per tractor per week increasing 4.1 percent to $3,833. Revenue per total mile declined 2.7 percent in the one-way TL division. The company’s trucking operating ratio (net of fuel) eroded by 100 basis points to 87.4 percent.
“We are very pleased to report adjusted earnings per share growth of 3 percent, despite comparing to a very strong second quarter 2018 that produced 90 percent adjusted earnings growth due to unusually strong freight demand and pricing. The strength of our diversified portfolio, our new truck and trailer fleet, increasingly experienced drivers and our committed Werner team led to our superior performance,” Werner President and Chief Executive Officer Derek J. Leathers said in the earnings press release.
Logistics revenue declined 2 percent as there were fewer project freight opportunities and “significantly” lower spot prices year-over-year. Logistics gross margin increased 40 basis points to 16.1 percent due to improved contractual pricing and capacity procurement. Operating margin for the division was 20 basis points worse year-over-year at 4 percent.
Werner’s total adjusted operating income increased 1 percent year-over-year to $59.2 million. The company’s consolidated adjusted operating margin declined 10 basis points to 9.4 percent.
Updated guidance
Werner lowered its 2019 full-year guidance, which still calls for 3 percent to 5 percent truck growth, mostly in the dedicated division, albeit at the lower end of the range. The company plans to add 100 trucks in the third quarter of 2019, with no truck growth in the fourth quarter. Also, the company expects one-way revenue per total mile to be in a range of -3 percent to flat, which is significantly lower than the previous guidance range that centered on the low end of a 4 percent to 8 percent range.
Management said that capital expenditures for 2019 should be at the lower end of the $275 million to $300 million range. WERN has invested meaningfully in the fleet in prior years and now plans to maintain its average tractor age of 1.8 years. They noted that there has been some moderation in used truck prices, but they still believe gains on equipment sales will be achieved at the low end of their $18 million to $20 million guidance range for 2019.
WERN will continue to pay its quarterly dividend and repurchase stock. The company repurchased 700,000 shares of common stock ($21.8 million) during the quarter and has 4.3 million shares remaining under its share repurchase authorization. WERN’s interest expense was $0.9 million higher year-over-year in the period at $1.4 million due to debt taken on to fund the $261.1 million special dividend announced in June.
