Heartland Express, the first pure -play truckload carrier to release second quarter earnings, turned in a performance that substantially beat key Wall Street expectations.
The company topped both Street estimates for earnings per share and revenue, both by a significant amount. According to SeekingAlpha, the estimate of GAAP earnings per share was $0.14, and Heartland beat it on a non-adjusted GAAP basis and an adjusted non-GAAP basis by $0.10 per share in each case.
Heartland’s second revenue of $160.87 million was up 13.2% year-over-year and beat estimates by $8.48 million.
Heartland’s operating ratio (OR), always one of the strongest in the truckload sector, did weaken significantly from the second quarter of last year, moving up to 84.5% from 79.6% on a GAAP basis. The jump on a non-GAAP basis was even bigger, up to 83% from 76.6%.
The key driver behind the jump in OR was an increase in expenses. Operating expenses after fuel rose to $121.9 million from $95 million in last year’s second quarter. Fuel surcharge revenue was down to $13.99 million from $18 million.
Operating revenue rose to $146.9 net of fuel, up from $124 million. That didn’t offset the rise in expenses and the end result was a drop in operating income to $24.99 million from $29 million.
Wage expenses up
Two key areas drove the rise in expenses: sales, wages and benefits, which jumped to $68.1 million from $53.4 million; and depreciation and amortization, which increased to $27.16 million from $22.6 million.
Although the expense side of the earnings report was up, Heartland CEO Mike Gerdin said in the company’s prepared release that “strong cost controls” were a factor in reaching the GAAP and non-GAAP ORs.
Heartland does not have a conference call with investors. In the statement, Gerdin said the company “showed strength in terms of profit and overall operating efficiency during these volatile and challenging times.”
In reviewing the quarter, Gerdin said the first two weeks of July has continued a stronger trend that Heartland saw in May and June. “The quarter started off with weak freight demand in April and then strengthened each month during the quarter,” he said in the statement.
Wall Street clearly liked the earnings. At approximately 10:25 a.m., on a day when the overall market was lower, Heartland’s stock was up $1.02 to $21.87, a gain of 4.89%.
In the past year, according to Barchart, Heartland stock has been a strong performer, up about 11.75% in the 52 weeks ended July 15. But since its market low of $15.65 on March 12, it’s up 34.8%.
In his statement, Gerdin said generating cash remains a goal of the company. At the end of the quarter, Heartland listed cash and cash equivalents of $82.45 million, up from $76.6 million.
That cash stockpile helped Heartland last year acquire Mills Transfer, a roughly 850-unit company, for $150 million. At the end of June last year, cash holdings at Heartland were $205.6 million.
In his statement, Gerdin said the OR occurred against a backdrop of “ongoing progress needed to apply our cost structure to the Mills Transfer business.” “We continue to be very pleased with the Mills Transfer acquisition, as revenue retention has been favorable and we still have significant additional operating efficiencies to pursue,” Gerdin said.
Heartland does not break out other information found in many truckload carrier’s earnings report, such as revenue per mile. It did say the average age of its tractors on June 30 was 2.1 years, up from 1.5 years at the end of June 2019.
Net cash flows for the first six months of the year were $83.8 million. Gerdin’s statement said Heartland used that cash to invest $63.9 million in the company’s fleet network, return $15.5 million to shareholders in dividends and stock repurchases (there were no repurchases in the second quarter), and add to the cash stockpile.
Heartland’s balance sheet remains debt-free. But that doesn’t mean it has no credit facilities to turn to if needed for acquisitions. It has an existing borrowing base of $100 million and could increase that with another $100 million, it said.