Heartland pulls in a lot less revenue than last year, but its earnings and OR are strong

Source: Truckstockimages

Source: Truckstockimages

Heartland Express (NASDAQ: HTLD) recorded a significant drop in revenues for the third quarter ended September 30, but a sharp drop in expenses led it to gains in its operating ratio and net income.

The truckload carrier, which does not hold an investors call in conjunction with the release of its quarterly earnings, recorded operating revenue of $151.3 million compared to $182.1 million in the corresponding quarter of 2017. Fuel surcharges were flat at a bit more than $21 million, so that is not the reason for the decline in revenue during what has been described as a strong trucking market.

SeekingAlpha, which tracks consensus earnings and revenue forecasts by analysts, said the revenue numbers fell short of projections by $11.5 million. But earnings per share of 23 cts using GAAP guidelines were 2 cts more than projections.

In its earnings statement, Heartland CEO Michael Gerdin focused mostly on the company's net income, its operating ratio and the integration of acquired company IDC into the fold.

The improvement in operating ratio is significant. In the third quarter of last year, Heartland's operating ratio was 92.9% and its adjusted OR was 91.9%. This year, those numbers were 83.4% and 80.7%, respectively.

Big shifts in that number for the quarter also pushed the nine-month OR down to 87%, compared to 87.8% after nine months of 2017.

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The OR and increase in net income to $19 million from $7.9 million last year was accomplished as the company significant reduced its compensation costs and its purchased transportation. Salaries, wages and benefits declined to $55.1 million from $71.4 million, while rent and purchased transportation fell sharply, to $4 million from $16.6 million.

The drop in revenue appeared to not be a concern to Gerdin, who praised many other developments for the company during the quarter. "Consistent with our acquisition plan of IDC, over the past year, we have integrated IDC into the Heartland platform and culture, focused on the most profitable customers and lanes, reduced our overall cost structure, significantly reduced the costs and operating limitations by ending many revenue equipment lease obligations, reduced the average age of our tractors and trailers, and heightened the level of service and safety afforded our customers and drivers, Gerdin said in the company's prepared statement.

Heartland acquired IDC in the third quarter of 2017.

The reference to focus on "the most profitable customers and lanes" is a recurring theme among companies, who have altered strategies in which service that is not profitable or barely profitable is being jettisoned to focus on business that is.

"Comparing the third quarter of 2018 to the third quarter of 2017, our first quarter of ownership, the results of these efforts are that our operating ratio has been reduced to our historical and targeted levels and our consolidated operating income has nearly doubled," Gerdin said.

Heartland has no long-term debt on its balance sheet. It holds $120 million in cash, up from $75.3 million at the end of 2017's third quarter.

Heartland's stock dropped 24 cts Wednesday to $18.46, a decline of 24 cts or 1.28%.

The Heartland decline was less than many other trucking companies that were hammered Wednesday. Knight Swift (NYSE: KNX) was down $1.12 or 3.47%; Old Dominion Freight (NASDAQ: ODFL) was down 2.44% or $3.39; Marten Transportation (NASDAQ: MRTN) , which reported earnings Tuesday, was down 71 cts, a drop of $3.54. The broader S&P 500 was essentially flat on the day.

A call to Heartland was not returned by publication time.