Saia’s strong first quarter had a significant purchased transportation component

Saia Inc. had a quarter strong enough that it spent a significant amount of money on purchased transportation, and the amount became the focus of one of the questions on its earnings call.

Richard O’Dell, President and CEO of the LTL carrier, said in the company’s first quarter earnings call that purchased transportation miles were 10.9% of the company’s linehaul miles in the first quarter of 2018, compared to 7.5% in the corresponding quarter of 2017. Expenditures on purchased transportation in the first quarter of 2018 were $29.9-million, up from $20.8-million a year, earlier, for a roughly 40% increase. “This increase is being driven by volume growth as well as purchased transportation used about the network after weather related terminal closures,” O’Dell said in the prepared portion of the call.

Frederick Holzgrefe, Saia’s CFO, said during the call that the cost per mile for PT, as it’s known, was up 14.6%, “driven primarily by truckload market conditions.”

Saia wasn’t the only LTL carrier with a significant increase in PT. Old Dominion posted a 20.7% increase in PT expenditures, though questioning of that figure did not come up in the company’s conference call. Notably, Old Dominion said the PT expenses were 2.7% of all expenditures in the first quarter of this year, unchanged from the percentage of 2017.

Brad Delco, an analyst with Stephens, asked O’Dell on the call about the PT figure, noting that “one of your competitors”—which he didn’t identify—“doesn’t use a lot of PT.”

O’Dell described the PT purchases by Saia as falling in two categories. One was “sub-optimal,” but there are others where PT “does provide some enhanced capacity.” In the latter category, using an empty truckload carrier to haul LTL quantities might be efficient for both parties.

O’Dell also noted that about 40% of the PT miles at Saia are on rail. “That’s a lower cost and a lower cost opportunity there,” he said.

“We see it as a mixed bag,” O’Dell said of the PT amount. Controlling your own capacity is beneficial, he said, “but some of the carriers are pretty efficient, and in some cases it makes sense for us. So I guess there’s kind of a balance in there.”

Saia disclosed that it had a cargo claims ratio of 0.88%, worsening from 0.75% in the corresponding quarter of last year. But the company’s employee count is up approximately 10%, and O’Dell said the company expects that to improve as these new hires gain further experience.

O’Dell noted that the cargo claims rate does not need to be disclosed. Delco asked whether the higher PT rates might have been a cause of the increase in the cargo claims rate, but O’Dell said it was more a function of the higher number of new hires. “We tend to report the number because we think it’s pretty good in the industry,” he said.

In other key points from the company’s earnings release and call with analysts:

  • Contracts renewed in the first quarter had an average “agreed upon” price increase of 7.6%. Like most executives on earnings calls, Saia analysts did not offer much more specificity on price increases beyond a basic statement like that. Holzgrefe said the company is seeing increases in weight per shipment, “which is kind of a negative on the yield,” but it’s being offset by the fact that hauls are getting longer. He said that in response to a question about pricing and the company’s yields net of fuel.
  • Saia is paying $5,000 bonuses to attract drivers, and a wage increase is coming July 1. Holzgrefe said the wage increase will be between 3% and 4%, “with drivers in some markets at the upper end, maybe even a little bit above that.” The average he cited was for the whole company, not just drivers.
  • Operating metrics for Saia, as they have been for virtually all trucking companies reporting firsts quarter earnings, were significantly higher compared to the first quarter of 2017. LTL tonnage was up 12.2%; LTL shipments were up 8.4%; revenue per cwt was up 7.7%; revenue per shipment was up 11.6%; and length of haul was up 5%. The operating ratio improved to 93% from 94.6%. Revenue of $392.8 million was up 21.6%, and beat estimated revenue by $8.8 million. Earnings per share of 77 cts—80 cts after inclusion of alternative fuel credits–beat consensus estimates by 5 cts.
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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.