Werner Enterprises (NASDAQ: WERN) continued the string of truckload carriers posting strong earnings results, with significant gains in all key metrics.
Operating income for the company as a whole rose to $82.7 million, a 30% gain from the fourth quarter of 2019. Meanwhile, the full-year record operating income of $241.9 million was 7% more than $225.9 million in operating income reported last year. Werner, in its prepared statement released Thursday in conjunction with the earnings, said both were records.
Werner’s Truckload Transportation Services (TTS) segment posted a nonadjusted OR of 83.5%, an improvement of 430 basis points from the OR of 87.8% from the third quarter of 2019. Meanwhile, on an adjusted basis, OR net of fuel surcharge was 420 bps better than last year, coming in at 81.8% compared to 86% last year.
A quick analysis issued by the Deutsche Bank transportation analysis team led by Amit Mehrotra called the 81.8% figure “remarkable for a company with 60% of its fleet in the Dedicated market.”
What was also notable about the Werner earnings was that as has been the case at several other trucking companies, even in a time of rising driver salaries, compensation costs have been kept in check. In the category of salaries, wages and benefits, expenses for the quarter were $197.7 million, down from $200.1 million in the fourth quarter of last year.
But as the Deutsche team said in its note, Werner, unlike its peers, has not implemented “more aggressive driver pay increases, which likely also helped 4Q results and we expect to become modest headwinds in 2021.”
One area that rose was rent and purchased transportation, which climbed to $140.1 million from $135.6 million. However, Werner’s Logistics segment saw rent and purchased transportation rise about $12 million, so the TTS entry for that, not disclosed in Werner’s release, would have shown a decrease.
Revenues for the TTS division, which includes both Dedicated and what Werner calls One-Way truckload, net of fuel climbed to $434.1 million, up 2% from the fourth quarter of 2019. But even on that relatively small increase in revenue, operating income for TTS rose 33% to $78.6 million, leading to the improved OR. The improved margins also came as Werner cut the size of its fleet, with 7,790 average trucks in service in TTS.
That smaller number of trucks saw revenue grow to an average per week of $4,287 from $4,071.Year-on-year average revenue per total mile was up 6.9% from the fourth quarter of 2019. The average percent change in miles per truck per week was up slightly to 0.3%.
But even though there was an overall smaller number of trucks, it was not split evenly. For example, the average number of trucks in service in the one-way service fell to 2,918 from 3,349. The gap between 2020 and 2019 was even wider at the end of the quarter, with 2,885 one-way trucks in service in 2020 compared to 3,370 at the end of 2019’s fourth quarter. Meanwhile, Werner said the number of trucks in its Dedicated division was up 230 trucks in the quarter.
“Net/net this was an impressive quarter from every angle,” Deutsche said in its report. “But the key question will be sustainability, and we see some incremental cost headwinds in 2021 related to driver pay hikes and likely higher claims costs, though some of this can be offset by higher gains on asset sales (expected to now be +12-15M in 2021 which is a nice step up from 2020 levels).”
Werner’s Logistics division saw an increase in total revenue, up to $130.1 million, a gain of 8%, but its bottom-line performance lagged. Operating income fell to $2.63 million from 2019, a 22% decline. Margin slid 280 bps to 12.5%.
“The gross margin percentage decreased 280 bps due to the large rise in spot truckload rates in the second half of 2020 which significantly increased the cost of capacity for contractual brokerage shipments in fourth quarter 2020,” Werner said of the Logistics division in its prepared statement.