The operating ratio at Heartland Express, long known for being one of the best in the truckload business, weakened in the third quarter as several other financial indicators moved in directions that ultimately led to a flat financial performance.
The adjusted operating ratio for Heartland was 81.5% in the third quarter. That’s wider from 79.4% in the third quarter of 2019. The adjusted OR was 83.2%, up from 81.9%.
Heartland does not hold a call with analysts to discuss its performance. It also does not break out various benchmark performance data on measurements such as average revenue per tractor per week.
The company is not followed by many analysts. But in a report issued after its second-quarter release, analyst Todd Fowler of Key Bank estimated that the company would make 21 cents per share in the third quarter on revenue of $158.2 million. Actual performance was revenue of $162.3 million and earnings per share of 25 cents.
Heartland’s earnings report does reflect a company that was impacted by widely discussed trends. First, the revenue increase came off a third-quarter 2019 number of $147.9 million. That’s an increase of 9.6%.
But Heartland also had a significant increase in costs. In particular, its salares, wages and benefits line item jumped to $67.1 million from $60.9 million, an increase of 10%. But at the same time, Heartland turned less to independent owner-operators, slashing its rent and purchased transportation expenditures to just under $1 million from $1.9 million.
Fuel costs declined to $21.2 million from $25.2 million. But the overall rise in costs to $134.9 million from $131.2 million got there through several other steps, none of them enormous. Depreciation and amortization were up a little over $2 million. Insurance and claims climbed about $1.6 million.
One big change: Gains on disposal of property and equipment were $5.7 million, down from $12.5 million in the third quarter of last year.
The end result is that operating income was up just 2.2%, to $27.3 million from $26.7 million. Net income was effectively flat at $20.7 million from $20.5 million.
In his prepared remarks, CEO Mike Gerdin said the growth in revenue before fuel surcharges was the sixth-consecutive three-month period of gains.
Gerdin also said that operating income and OR were impacted by “ongoing progress needed to apply to our cost structure to the Millis Transfer business.” Heartland acquired Millis in August.
Heartland’s closely watched cash bonanza was slightly down, dropping to $81.9 million from $82.4 million in the second quarter. It’s closely watched because Heartland has been in an acquisition mode and the cash stockpile is an important part of that.
Gerdin said the cash at Heartland stayed flat despite “significant net outlays” of $48.4 million for revenue equipment and terminal projects.
Net cash flow for the quarter was $133 million, a 27.2% margin, Gerdin said. The company used $112.4 million for its fleet and terminal network and used $17.2 million for stock buybacks and dividends (Heartland stock’s yield at present is less than 0.5%) and to increase its cash position.
Heartland stock owners have had a tough year. The stock in the last 52 weeks is down roughly 7.75%. That is far worse than other truckload carriers. In the last year, Werner is up about 22.7% and Marten is up about 23.2%.
In early trading Friday, after the release of the company’s numbers, Heartland’s stock at roughly 10:45 a.m. was down 1.28% to $20.05. Several other truckload carriers, on the back of weak earnings reports from Marten and J.B. Hunt, were also down despite the rise in broader indices.