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Heartland Express sees Q4 gains, eyes acquisitions

Operating income up 35% as revenue declines modestly

Heartland Express' Q4 result in-line; M&A back in play? (Photo: Jim Allen/FreightWaves)

Heartland Express (NASDAQ: HTLD) kicked off the fourth-quarter truckload earnings season on Tuesday, posting an in-line earnings result at 22 cents per share.

The North Liberty, Iowa-based carrier reported a 6.8% year-over-year decline in revenue at $156 million as a result of lower fuel surcharges and fewer miles driven. Excluding fuel surcharges, revenue declined 2.6% in the period. The press release attributed the decline in miles driven to an “overall fleet reduction,” which has been a headwind noted by other carriers as the industry grapples with driver attrition.

More importantly, operating income improved 34.6% compared to the year-ago quarter with the company posting an 83.3% operating ratio, a 460-basis-point improvement.

Heartland Express does not provide any operating metrics around utilization and pricing.

Table: Heartland Express’ key performance indicators

CEO Mike Gerdin noted a focus on driver utilization in the face of peak demand and internal cost controls as reasons for the improved operating results. The carrier implemented a 6% pay increase in late October, 12% higher for some drivers, its third increase in as many years.

“2020 may be looked at as one of the most challenging periods of driver hiring and retention within an industry already challenged with an aging and declining population of qualified, professional and safe-operating drivers,” Gerdin stated. “We believe that to attract and retain the best of the best and the safest drivers on the road, an investment in our current and future drivers is a critical investment for our company and our industry as a whole.”

Even with the mid-quarter pay bump, salaries, wages and benefits were 200 bps lower year-over-year as a percentage of revenue. Many fleets have noted a reduction in health care expenses as visits to the doctor have fallen sharply during the pandemic.

Commentary in the press release turned an eye toward acquisitions. The carrier ended the year with $114 million in cash, no outstanding debt and $200 million in borrowing capacity. Additionally, net cash flow from operations was $179 million in 2020, 27.7% of revenue.

In years past, when Heartland Express’ cash balance climbs on its historically debt-free balance sheet the carrier acquires another fleet like it did with Interstate Distributor in 2013 and Gordon Trucking in 2017. The company is still digesting the 2019 addition of Millis Transfer but noted another deal could be on the horizon.

“We continue to rely on our cash generated from operations and cash on our balance sheet as our main sources for capital deployment, but we maintain our ability to borrow against our line of credit for a potential strategic acquisition opportunity,” the release stated.

However, management noted that there are still operational improvements needed within the Millis fleet, which lags Heartland’s legacy OR by approximately 1,200 bps. The long-term consolidated OR target remains in the low-80% range.

For full-year 2020, Heartland Express posted an 84% OR, 210 bps worse year-over-year. The year included a full 12 months of operating results from Millis compared to 2019, which included only four.

Operating income for the year was nearly flat with 2019, even including a $16.5 million reduction in gains on equipment sales. Heartland Express expects to record net capital expenditures of $80 million to $90 million in 2021 as it continues to invest in the fleet — the average tractor age was 1.7 years at the end of the period — and in its terminal network.

Shares of HTLD are up more than 3% in midday trading compared to the S&P 500, which is up 0.5%.

Click for more FreightWaves articles by Todd Maiden.

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.