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Company earningsNews

U.S. Xpress tables margin guidance amid tepid freight environment

PHOTO: TRUCKSTOCKIMAGES.COM

U.S. Xpress (NYSE: USX), a Chattanooga-based truckload (TL) carrier, held a call with analysts and the media to discuss its first quarter 2019 earnings, which were $0.15 per share compared to the consensus estimate of $0.18.

The company said that given the subdued freight market thus far in the quarter it now expects its operating ratio (OR) will be worse year-over-year in the second quarter (second quarter 2018 OR was 93.4 percent). Management said that it will wait for better market visibility before updating its full-year OR guidance. That said, the 93 percent full-year OR target isn’t off the table.

Management said that the OR goal could be achieved if the spot market were to produce a little improvement in both volumes and price. Additionally, the company has cost reduction initiatives in place to drive future OR improvement. Part of the 93 percent target will require insurance expenses to move lower.

The company has phased in hair follicle testing for drug use instead of 100 percent adoption of the policy in an attempt to stem any negative impacts in driver turnover. USX believes that all of its drivers will be in the hair follicle testing program by year-end. Also, the company continues to implement measures to achieve an entirely frictionless order system to improve service and lower cost, but this is a long-term project and not likely to impact 2019’s OR.

While USX is not seeing robust seasonal volume increases, it is seeing positive results in contractual pricing. So far, the company has re-priced 40 percent of its contractual book and it is seeing 5 percent rate increases. USX expects to achieve mid-single digit price increases in 2019 as the company continues to have constructive conversations with customers regarding future contract renewals. Management believes that an increase in dedicated freight, along with modestly lower spot exposure, will provide tailwinds in achieving improved average revenue per mile. That said, the over-the road division has a bit of a headwind; this division has roughly 20 percent spot exposure (spot market exposure represents only 10 percent of USX’s total revenue). Management expects to attain contractual rate increases in its over-the-road offering, but said that it will be tough to get increases in average revenue per mile in the division with spot rates down 20 percent year-over-year.

 DAT VAN FREIGHT RATE INDEX (NATIONAL US VAN) -  SONAR
DAT VAN FREIGHT RATE INDEX (NATIONAL US VAN) – SONAR
 USX KEY PERFORMANCE INDICATORS - FINANCIAL
USX KEY PERFORMANCE INDICATORS – FINANCIAL

USX reported operating revenue of $415.4 million for the quarter, a 2.4 percent decline year-over-year. Revenue adjusted to exclude fuel surcharges and the company’s discontinued operations in Mexico increased $2.9 million in the period. Adjusted operating income was 8 percent higher at $16 million. The adjusted operating ratio improved 40 basis points to 95.7 percent.

 USX KEY PERFORMANCE INDICATORS - OPERATING METRICS
USX KEY PERFORMANCE INDICATORS – OPERATING METRICS

Average revenue per tractor per week increased 1.1 percent year-over-year in the first quarter of 2019 to $3,762 in the TL segment as average revenue per mile increased 3.8 percent to $2.13, partially offset by a 2.5 decline in average revenue miles per tractor. The TL division reported a 20 basis point improvement in operating ratio, which was 96 percent. The company said that its spot exposure, 20 percent, in its over-the road division created rate and volume headwinds in the quarter. Additionally, both truck divisions were impacted by adverse winter weather, particularly in the Northeast where the dedicated division has a large concentration of volume.

USX’s average tractor count was up 30 trucks to 6,275 units. The over-the-road division’s truck count declined five units while the dedicated division increased its count by 35 trucks. Over-the-road average revenue per truck per week declined 6 percent as average revenue per mile increased 0.7 percent year-over-year. Dedicated reported an 11.8 percent increase in average revenue per truck per week with a 7.1 percent increase in average revenue per mile.

The brokerage division reported a 15.2 percent revenue decline year-over-year to $46.2 million as load counts declined 13.8 percent. Gross margins expanded 350 basis points to 17.5 percent. Operating income increased 18.9 percent to $2.8 million in the quarter as higher gross margins were driven by lower transportation costs on a per load basis and improved third-party capacity sourcing.

Management said that 2019 will be the last year for accelerated capital expenditures on equipment as the company lowers its average tractor age to 18 months by year-end (from 27.5 months currently). Total spend will be $170 million in 2019, but should normalize to $115 million beginning in 2020.

 USX STOCK PRICE CHART -  SONAR
USX 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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