Universal Logistics has a bangup quarter, but not satisfied with its automotive or dedicated segments

Some highlights from the earnings report and conference call with analysts for Universal Logistics, which like virtually everybody else in the trucking sector had a strong second quarter.

• Universal has always had heavy exposure to the automotive sector, too heavy, it believes. CEO Jeff Rogers said on the earnings call that Universal has been trying to reduce its exposure to the automotive sector, “and we’ve not been real successful to do that,” according to a transcript of the call supplied by SeekingAlpha. There also have been disappointments in its dedicated sector, though Rogers said the division did make money in the second quarter after recording red ink in the first three months of the year. “We’re going to continue to execute on the strategy of trying to expand away from automotive and dedicated, because there are plenty of opportunities out there to do that,” he said. “We’ve just not been able to take advantage of that yet, but we’re going to keep swinging it, and I think we can do it.” For the automotive footprint that will remain, the focus will be on those customers who “are a little bit more willing to pay on a consistent basis.”

• As far as where that other focus might be, Rogers did not rank them, but a review of the performance of other sectors at Universal did highlight those other opportunities. Universal describes itself as asset-light, but it did report 722 tractors at the end of the quarter (down from 812 a year earlier) in its truckload division, and 1,030 in its intermodal division, up from 924. In dedicated, it was 722 vs. 812. The truckload services segment revenue was up 7.7%, brokerage services revenue was up 42.9%, and intermodal, in the first full quarter since it acquired Fore Transportation in February, was up 41.7%. Still, despite Rogers’ apparent disappointment with the dedicated unit, it did have a revenue increase of 17.8%. “We continued to negotiate new rates during the quarter, and we are having success with most of our customers as they see the value of dedicated capacity in this current environment,” Rogers said in his prepared remarks about dedicated. “Our dedicated unit did return to profitability in the second quarter, but still remains below our expectation.”

• Rogers raved about the intermodal business later in the call. “Our intermodal team continues to outdo themselves, he said. “They delivered another record quarter on the top line and best-ever operating income.” Later, he said Universal “loves” the intermodal business, which also includes its drayage operations. Rogers was speaking in response to an analyst question about acquisitions, and he noted that Fore had been an acquisition in intermodal. “Obviously, we’re looking there and we think we have opportunities,” he said. “We’re going to be very disciplined, but we want to look at businesses that either add a new area, whether a location that fits within our strategic footprint, where we’re not at now and we also want to do what we do.”

• On pricing, Rogers said in his prepared remarks that pricing was “firm” and the company is getting double-digit increases on contractual deals and “high double digit increases and more” in the spot market. Unscripted, Rogers described the spot market as “really, really hot and it’s still real hot.” “Contractual business is catching up and is getting much stronger, because I think, people realize it’s not going to change anytime soon,” he said. “So they might as well lock in a contract. Even though the contract rate may be double digits at this point, it’s better than a 20%, 25% spot rate.”

• Although average operating revenue per mile excluding fuel was up in the truckload division, the number of loads hauled was down. Rogers cited driver issues as a key cause. Much of the drop was in what he described as “the irregular route where the driver goes out and is gone for weeks on end.” Internally, drivers like that, he added, are described as “unicorns…they’re hard to find.”