The year 2018 is shaping up as one not seen in trucking in more than a decade, explained Chris Lofgren, CEO of Schneider National, on the company’s earnings call on Thursday morning. Assuming strong fundamentals and continued economic growth, “this is going to be like the combination years of 2003-04, that’s the kind of environment we are in,” he said.
Citing the strong pricing and demand environment for freight, Schneider National (NYSE: SNDR) reported 2018 first-quarter revenues (excluding fuel surcharges) were up 11% over 2017.
Schneider reported operating revenues of $1.1 billion in the first quarter, a 13% jump over first quarter 2017. Rate increases drove enterprise income up 55% over the first quarter of 2017 to $67.6 million with net income rising 111% to $47.6 million.
Diluted earnings per share were 27 cents, compared to 14 cents in the first quarter of 2017. Schneider updated its full-year outlook to $1.50 per share, up from $1.38.
As good as the first quarter was, Lofgren expects “more upside in the second half of the year.”
“We remain bullish on the prospects as our customers continue to grow their business,” he noted.
On Tuesday, Schneider announced it would pay a quarterly cash dividend of $0.06 per share on its Class A and Class B common stock, payable to shareholders of record as of June 15, 2018. The dividend is expected to be paid on July 9, 2018.
“We delivered record first quarter enterprise operating earnings, and all three of our segments provided solid returns,” noted Lofgren. “As expected, market conditions were unlike any we have experienced in over a decade. Demand and bid activity were strong, while driver capacity was tight. Our broad portfolio of services, disciplined approach to revenue management leveraging our Quest platform, and capital allocation methodology allowed us to excel in the market. Our ability to offer customers alternative transportation solutions and deliver upon them allowed us to manage commitments, driving our financial performance in the quarter.”
Lofgren said that the lack of drivers and current pricing environment remain positives, and he expects the intermodal division, which is less driver-intensive, to lead segment performance. He also said market fundamentals are strong.
“We believe that the full effect of our bid activity will impact the second half of 2018, as customers understand and are willing to support capacity conditions,” Lofgren said. “We anticipate continued improved market fundamentals and improved performance in all of our segments.”
The company said that despite operating costs rising due in part to driver-related costs, they were in line with expectations. The company’s operating ratio fell from 95.7% in the first quarter of 2017 to 94.1% this quarter.
Net interest expense also fell by $2 million as the company lowered its outstanding debt levels by about $7 million in the quarter to $433.6 million. Schneider also saw its effective income tax rate drop from 40.5% for the first quarter of 2017 to 26.2% in 2018, a change driven by the tax changes enacted by Congress, it said.
Schneider said it has increased its cash and cash equivalents to $300.1 million, up from $238.5 million as of Dec. 31, 2017, the result of increased earnings.
In its various operating segments, truckload saw revenue increase 6% to $551.3 million (excluding fuel surcharges) and income increase 23% to $47.4 million.
Revenue per truck moved up $208, or 6%, compared to the first quarter for 2017. “Price improvement in a seasonally strong market was partially offset by decreased truck productivity due to the impacts of weather. For-hire standard and dedicated standard drove the improvement, with revenue per truck per week growth of 9% and 8%, respectively,” the company noted.
Tractor growth was flat year-over-year in the division and down about 250 units from the end of the fourth quarter of 2017. There was also a 1% productivity hit per tractor in the quarter. However, pricing remains strong in truckload, with “low double digit” average price gains on contracts closed in the first quarter, said Mark Rourke, executive vice president and COO.
Schneider’s First to Final Mile (FTFM) service had a good first quarter, with revenue mostly flat against the fourth quarter, which is traditionally the stronger quarter. FTFM added approximately $60 million to truckload revenues, although higher driver costs and lower gains on equipment sales were a drag. The company also made investments in its FTFM network to reduce transit time to accommodate e-commerce growth, it said. The result was a 250 basis point negative on truckload operating ratio.
Investments in its FTFM include two additional facilities and the beginning of installation of delivery optimization software for both first and final mile in addition to more straight trucks and Transit vans to handle growth.
“Middle mile transit times have improved over 25% from mid-2017 levels,” the company noted. “Now, additional volume must be added across the fixed infrastructure. [Schneider] expects it will take several more quarters of growth and productivity improvements before this service offering is accretive.”
Schneider has 1,350 trucks in its FTFM network.
Order and price increases in its intermodal division drove an 11% increase in revenues in the first quarter over 2017 in that segment, excluding surcharges, to $201 million. Schneider said that several internal and external factors helped it achieve the growth. Intermodal pricing is rising as the same pace as truckload, it said, but rail velocity was a negative on revenue, which increased 5% on a per order basis to $1,982.
In 2017, Schneider shifted to an owner chassis model and added 450 additional containers to its fleet in the first quarter. The result was a 5% quarter-over-quarter improvement in container productivity and a 230% increase in intermodal income from operations.
Lofgren cited the company’s rollout of its Quest data science management platform and the overall environment as factors in intermodal growth. “We can’t overestimate the fact that capacity is tight across all surface transportation,” he said.
“We are almost as constrained on the box front as we are on the [dry van] front,” added Rourke.
Rourke also pointed out that there is “strong appetite for conversion to intermodal [by retail customers]” and is one of the reasons “we’re so bullish and [think] it’s the right time to add containers.”
Moving to intermodal also helps Schneider keep these customers’ freight out of the spot market, “which can be problematic” from a pricing standpoint, he said.
Operating ratio in the segment fell to 89.1%.
Rourke said that 30% of the company’s intermodal customers renewed in the first quarter with “price increases in the high single digits.” Plans call for the addition of 350 new containers/chassis in service by the third quarter as part of a purchase of 3,500 overall containers and chassis.
Lofgren said that the company will continue to invest where it makes sense, and intermodal is one area where it does.
“What we are absolutely not going to do is try to add a whole bunch of cost chasing things that don’t make sense,” he said. “When we can add things at appropriate recruiting costs, appropriate driver costs, we’re not opposed to doing that.”
Schneider expects to spend between $325 and $375 million on capital expense in 2018.
Continuing its sunny first-quarter report, Schneider said revenues in its logistics segment increased 20% over the first quarter 2017 to $220.8 million, with a 48% increase in income from operations to $7.7 million.
The growth in logistics was attributed to its brokerage division, which saw volume increase 10% over 2017 Q1. Brokerage was 77% of all logistics revenues (excluding fuel surcharges), the company said, up from 72% in the same quarter of 2017.