Mullen Group is well-equipped to ride out the soft patch in Canada’s freight market surrounded by the “moat” of its growing less-than-truckload (LTL)business, but the company’s CEO suggested that a spate of trucking failures could hit the industry.
“Most likely they will happen at the same time,” Murray Mullen said during a call with analysts on October 24, after the transportation and logistics firm reported flat third-quarter results.
Mullen reported an adjusted net income of C$16.5 million, or C$0.16 per share, on C$325.3 million in revenue. The results came just under analyst expectations of C$0.17 per share on C$334 of revenue. (A Canadian dollar equals US$0.76.)
Mullen said the results, while flat, were strong in the context of a tough market.
“We had a really good year last year. From this perspective, we had some high hurdles to clear [this quarter],” said Mullen.
Mullen expressed hope that the weakness in freight, stemming from lower capital investments, represented a “blip” rather than a long-term downturn.
Revenue dropped by 4.2% compared to the third quarter of 2018. The decline was more dramatic in profits, with adjusted net income dropping by 19.5%.
Revenue from trucking and logistics declined by 2% to C$222.2 million, largely on weakness from truckload services. But Mullen got a C$6.7 million boost from LTL, primarily from recent acquisitions and its Gardewine Group.
Growth in LTL through acquisitions
Mullen expects to continue building out its LTL business with additional acquisitions and hopes to make it more than 50% of its trucking and logistics business. Final mile is an especially attractive area, drawing on the strength of consumer spending.
“You have a moat that’s very difficult to replicate,” Murray Mullen said of LTL.
Mullen did not make any specific predictions about trucking failures. He characterized trucking failures across North America as a “culling of the herd,” and said competitors who failed to diversify would be hit the hardest.
Canada has been relatively unscathed by major failures in 2019, with the most notable closure happening with bankrupt carrier FTI.
Mullen blamed the weaker freight market on lower capital investment in Canada. LTL, however, “is the most stable part of our business because it is tied to the consumer,” Mullen said.
Operating income from the segment held relatively steady, declining by 0.6% to C$35.8 million. Mullen noted that acquisitions and LTL performance added C$1.1 million to operating income.
Mullen also reported an improved operating margin of 14.9%, a 100-basis point improvement over 2018.
Revenue from oilfield services declined by 9.3% to C$103.9 million compared to the third quarter of 2018. Operating income from the segment improved by 3.2% to 22.3%.
While oil field services were weak, Mullen got a boost from increased pipeline-building activity, primarily related to natural gas projects in Western Canada.
“This is extremely positive and one of the few signs that there is some hope for Canada’s energy producers,” Mullen said.
Mullen also pointed to “significant” acquisition opportunities in the challenging market, noting that the company had a healthy balance sheet.
“I am confident that we will gain market share as our competition struggles within the current macro environment,” he said.
Mullen Group operates trucking and logistics units stretching from Ontario and British Columbia, which have come to supplant oil services as the firm’s largest business. Mullen does not own any U.S. carriers, though its carriers handle cross-border freight.