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Werner’s first quarter call provides further look into 2019 expectations

PHOTO COURTESY OF TRUCKSTOCKIMAGES.COM

Werner Enterprises, Inc. (NASDAQ: WERN), one of the nation’s largest transportation and logistics companies, reported non-GAAP adjusted earnings per share (EPS) of $0.52, which was $0.03 ahead of the consensus estimate.

WERN reported a 6 percent year-over-year increase in total revenue as trucking revenue (net of fuel surcharge) increased 9 percent to $397.7 million and logistics revenue was flat in the period at $117.4 million.

The company’s one-way truckload division saw a 1.5 percent decline in average tractors and a 2.8 percent increase in revenue per tractor in the quarter with the dedicated division seeing a 12.7 percent increase in average tractors and a 3.6 percent increase in revenue per tractor. Revenue per total mile increased 6.5 percent in the one-way truckload division.

 WERN KEY PERFORMANCE INDICATORS
WERN KEY PERFORMANCE INDICATORS

On its earnings call, management said that 40 percent of its bid season is complete in its one-way truck division. Thus far, WERN is seeing “mid- to better than mid-single digit contractual rate increases.” The company expects another 40 percent of contracts to be renewed in the second and third quarters. Management said that it has minimal spot market exposure and looks to continue to drive growth in its dedicated division.

Management said that the dedicated pipeline is robust with several contracts that are close to implementation. That said, they are not expecting a robust sequential improvement in one-way truckload demand. Management said that inventory de-stocking is occurring, but freight demand has moderated in April and has been lower year-over-year. However, management believes that the company is well-positioned to meet its guidance.

WERN maintained its 2019 full-year guidance of 3 to 5 percent truck growth with the bulk of this occurring in the dedicated division. Also, the company expects one-way revenue per total mile increases to occur at the low end of its prior 4 to 8 percent range, gradually moderating throughout the year as the year-over-year comparisons become more difficult.

On the cost side, driver pay increases are expected to moderate moving forward. WERN saw a 9 percent increase in driver pay in the quarter (salaries, wages and benefits as a percentage of revenue increased 150 basis points), but noted that increases are likely to ease as the company’s driver turnover rate was at its second-best level in 20 years during the quarter. Additionally, management believes that equipment utilization (miles per truck, which were 3.5 percent lower in the one-way division) will remain flat as weather and seasonality improve.

WERN’s total adjusted operating income increased 40 percent year-over-year to $49.2 million, with its consolidated adjusted operating margin improving by 200 basis points to 8.2 percent. The truck division’s adjusted operating ratio (net of fuel) improved 190 basis points to 89.1 percent and the operating margin for the logistics division was 170 basis points better at 4 percent.

At the close of the call, Werner’s President and Chief Executive Officer Derek Leathers said that the heavy capital expenditure years incurred as the company worked to balance its service offerings are behind them and that they expect to see long-term margins and returns higher than those in the past.

 WERN STOCK PERFORMANCE CHART - BARCHART
WERN STOCK PERFORMANCE CHART – BARCHART

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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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