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Schneider sees ‘constructive market well into 2022’

Gains on sale big help in Q3

Schneider beats third-quarter estimates, raises guidance (Photo: Jim Allen/FreightWaves)

Schneider National is calling for more of the same, elevated transportation demand and limited supply, as 2021 comes to an end.

The Green Bay, Wisconsin-based truckload carrier reported adjusted earnings per share of 62 cents for the third quarter, 10 cents ahead of consensus and double the year-ago period. The quarter included a $3.1 million loss on equity investments, which was offset by higher gains on equipment sales.

Schneider National (NYSE: SNDR) updated its full-year 2021 adjusted EPS guidance to a range of $2.13 to $2.17, which is 13% higher than the previous guide at the midpoint of the range and above the current consensus estimate of $1.98.

“We anticipate that the freight conditions of the third quarter will be sustained through year end and likely through 2022,” stated Mark Rourke, CEO and president, in a press release.

The increased outlook puts the carrier on track to post $5 billion in revenue and $500 million in operating income in 2021.

Gains on sale push TL results higher

Revenue excluding fuel in the TL segment increased 5% year-over-year to $484 million as revenue per truck per week was up 15% to $4,060. Headwinds around driver hiring continued to limit the number of trucks the company has seated each day. The average truck count was off 9% in the quarter.

The TL segment’s operating ratio improved 770 basis points year-over-year to 82.4% but gains from the sale of tractors and trailers were a meaningful tailwind. Schneider recorded $29.3 million in gains on sale during the third quarter compared to just $13.7 million in the second quarter.

The increased gains relative to the second quarter, which were materially higher than the couple of million dollars the line item normally generates for most carriers, resulted in 330 bps of margin improvement in the TL segment. The increase in gains from the second quarter also accounted for an additional 7 cents in EPS during the quarter.

A steep increase in equipment values has been the result of high demand for truck capacity along with a sharp falloff in build rates at the original equipment manufacturers, which are dealing with semiconductor and parts shortages.

The TL margin in the third quarter was actually down 120 bps from the second quarter when keeping the line item flat.

Management said Schneider will sell less than half of the equipment that it sold in the third quarter but that operating income should stay level.

“We expect quite a bit less gains in the fourth quarter but still expect to put as much operating income on the board as we did in the third,” said CFO Stephen Bruffett on a call with analysts. “That’s an indication that we think everything else is working really well.”

The relative operating income drag in TL was related to the onboarding of new equipment and drivers in the dedicated segment.

Schneider ended the third quarter with 252 more dedicated trucks and 280 more dedicated drivers than it started with. The incremental startup costs of the new contracts hit before the revenue began flowing through the division. Costs were also higher as the company’s five new driver apprenticeship academies are up and running.

Intermodal revenue increased 19% year-over-year to $296 million. Loads were up 1%, with revenue per load moving 20% higher. Schneider grew its container fleet by 1,600 sequentially in the quarter and expects similar additions in the fourth quarter. Even with slower container turns at customer facilities and only a slight improvement in rail service the division posted an 84.5% OR, 620 bps better year-over-year.

Loads in the brokerage segment were up 24% year-over-year with higher revenue per load bridging the gap to 67% revenue growth at $475 million. Management said the power-only brokerage offering is allowing Schneider to grow its customer book to include the small shipper community.

Table: Schneider’s key performance indicators

2022 to be more of the same

Schneider ended the period with $308 million in debt, which was level with the close of 2020, however its cash balance grew by more than $100 million to $504 million.

Management said it will continue to look at M&A as a means of deploying cash but noted that option remains the last choice. The company is primarily focused on growing the dedicated and intermodal fleets as well as furthering investing in automation and the brokerage platform.

The outlook for full-year net capital expenditures was reduced to $300 million (from $325 million to $350 million). The reduction stems from the higher gains on sale as well as equipment delivery delays.

On the outlook for next year, Rourke said: “I think it’s on both sides of the equation, supply and demand, that gives us a degree of confidence that we have a constructive market well into 2022.” He believes capacity will be tough to procure moving forward as the OEMs play catch-up and inventories are still in need of replenishment.

“And we still have, by all measures, a very healthy consumer and all of our channel checks relative to our customer base, for the most part, are still quite bullish as we head into next year.”

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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.