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Schneider National’s earnings call focused on its lower guidance

PHOTO: SCHNEIDER NATIONAL

Schneider National, Inc. (NYSE: SNDR), a transportation and logistics services company, held  a call with analysts and media to discuss its first quarter 2019 earnings results, which were $.21 per share. SNDR’s first quarter results were $0.06 per share lower than last year and $0.10 worse than the consensus estimate.

 SNDR’S KEY PERFORMANCE INDICATORS - FINANCIAL
SNDR’S KEY PERFORMANCE INDICATORS – FINANCIAL

Most of the call focused on explaining what occurred in the first quarter and how the company will achieve its lowered guidance.

New guidance calls for earnings per share of $1.50-$1.60, which is $0.15 lower on both ends of the range. Management said that the lowered guidance primarily reflects the first quarter underperformance. They said that most of the unfavorable performance in the first quarter can be corrected and the company has already taken the actions necessary to improve volumes in primary lanes and better align costs with volume. Further, April is producing improvement in virtually every metric for the carrier, which is better than the company’s normal seasonality.

The current NASDAQ consensus estimate is $1.69.

On the call, management said that they feel good as they move through bid season. The weaker results in the first quarter were the result of the company entering the year with lower volume commitments on its primary lanes as it had pursued other opportunities previously.

Further, management said that it had success adding drivers at the end of 2018 and carried some costs forward (driver count and recruiting) that weren’t appropriately matched with their guaranteed volume. This forced SNDR to its secondary lanes in search of freight, where the company has a lower position on the routing guide. After that, the carrier turned to the spot market looking for freight, where rates are considerably depressed compared to contractual rates. Management said that its spot market exposure increased 30 percent in the quarter (total for-hire spot exposure is less than 10 percent).

Management said that its contractual business is seeing mid-single digit price increases currently, but noted that contract renewals will become more difficult in the back-half of the year as the comparisons get tougher because these contracts were favorably negotiated when spot rates were high. Management said that contract rates were up double-digits on some business, but seasonal and special project freight declines weighed down the net result. For the full-year 2019, the company expects contractual pricing to be positive.

 DAT VAN FREIGHT RATE INDEX (NATIONAL US VAN) -  SONAR
DAT VAN FREIGHT RATE INDEX (NATIONAL US VAN) – SONAR

Additionally, the First to Final Mile (FTFM) conversion should begin to lap difficult year-over-year comparisons. SNDR continues to try to minimize the variability in its first- and middle-mile operations by converting more freight to intermodal, for-hire truck and third-party capacity. Management said that the comparisons get easier by the third quarter, but didn’t commit to this offering being profitable this year.  

Lastly, SNDR expects intermodal margins to improve and said that excess dray and box capacity were headwinds in the quarter. Additionally, the company believes that the bulk of the service headwinds at the railroads – both weather-related and precision scheduled railroading initiatives – have eased.

 SNDR’S KEY PERFORMANCE INDICATORS - TL OPERATIONS
SNDR’S KEY PERFORMANCE INDICATORS – TL OPERATIONS

Schneider National reported total revenue of $1.194 billion, up 5 percent year-over-year. Revenue excluding fuel surcharge increased 6 percent to $1.082 billion. Operating income excluding fuel declined 24 percent to $51.5 million with an adjusted operating ratio (OR) of 95.2 percent, 180 basis points (bps) worse year-over-year.

The truckload (TL) division reported a 3 percent year-over-year decline in revenue excluding fuel surcharges. Revenue per truck per week declined 2 percent to $3,606. While pricing improved in the quarter, lower volumes led to lower truck utilization. Average trucks declined by 186 units to 11,573. Operating ratio for the division was 95.6 percent, 410 bps worse year-over-year. Additionally, the TL division was negatively impacted by its FTFM conversion, which the company said negatively impacted the OR by 320 bps.

Intermodal revenue excluding fuel surcharge increased 18 percent to $237.6 million as orders were up 3 percent and revenue per order increased 13 percent. However, operating income declined 10 percent in the period as drayage productivity declined due to weather-related railroad service headwinds.

Logistics revenue excluding fuel surcharge increased 10 percent to $243.9 million as brokerage volumes increased 20 percent. Management said that lower spot rates drove the increase in brokerage demand. Operating ratio improved 70 bps to 95.8 percent. The division reported more than 19,000 digital, no-touch broker loads in the period.

 SNDR STOCK PRICE CHART -  SONAR
SNDR STOCK PRICE CHART – SONAR

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.

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