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    3.280
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    126.000
    5.000
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Company earningsNewsTruckload

Updated: U.S. Xpress has tough quarter, improvement on the horizon

Chattanooga-based truckload (TL) carrier U.S. Xpress (NYSE: USX) reported adjusted earnings per share of $0.06, worse than the consensus estimate of $0.12.

Takeaways from the earnings call

On its earnings call, management said that they are seeing some firmness in the market in recent weeks and commented that the first month of the third quarter (July) was better than the first month of the second quarter (April). They went on to say that daily load opportunities have increased and that their customers are telling them that overall demand and shipments for peak season will be higher. However, they did note that those some of those same customers have the mindset that they will be able to get lower rates as excess truck capacity exists.

Management said that part of the second quarter struggle stemmed from a spike in their spot rate exposure. Typically, 80 percent of its over-the-road (OTR) business is contractual. However, in the second quarter spot market exposure increased to 25 percent as USX attempted to re-position roughly 300 to 350 tractors from its discontinued operations in Mexico. The less than favorable pricing on these movements drove revenue per tractor per week lower as well as OTR margins. So far through 2019, USX has renewed roughly 75 percent of its contractual business and has seen rates on this business improve by more than 3 percent.

On the cost side, USX opened its second driver development center in July and has plans to open more around the country. Management has seen improved safety statistics from the pool of drivers coming from this program and believe that it will begin to surface in lower insurance and claims expense in the future. The insurance expense line, along with a higher level of automation throughout the network, are the primary cost levers for USX moving forward.

Consolidated financial results

USX reported operating revenue of $413.9 million for the quarter, an 8 percent decline year-over-year. Revenue excluding fuel surcharge was down a similar percentage at $371.2 million. Adjusted operating income was 64.8 percent lower at $9.3 million. The adjusted operating ratio (OR) deteriorated 410 basis points to 97.5 percent, which was in-line with the company’s updated guidance. The company’s adjusted net income of $2.9 million was roughly one-quarter that of the same period in 2018.

The carrier lowered its outlook for the year three weeks ago. On July 11, USX issued a press release stating that its second quarter 2019 OR would be approximately 97.5 percent compared to the prior guidance, which called for sequential improvement from the 95.7 percent mark reported in 2019’s first quarter. Additionally, the company took the 93 percent OR target by year- end off the table, replacing it with a range of 95.5 percent to 97.5 percent, citing a lack of seasonal improvement and excess truck capacity as the reasons.

“The freight market remained challenging through the second quarter driven by weaker than seasonal demand combined with capacity growth as a result of more favorable market conditions in 2018. This supply-demand imbalance severely pressured spot pricing through the quarter, which adversely impacted parts of our business,” said U.S. Xpress’ President and Chief Executive Officer Eric Fuller.

Segment results

The TL segment reported a 0.8 percent year-over-year decline in average revenue per tractor per week on a consolidated basis. Average revenue per mile increased 0.6 percent to $2.12. The carrier saw an 8 percent increase in contractual rates in the OTR division, but spot rates declined more than 30 percent in the period. All in, average revenue per mile was down 3.3 percent in OTR, but increased 5.4 percent in dedicated. The TL division reported a 97.6 percent adjusted OR, 490 basis points worse year-over-year. Increased spot market exposure as the company attempted to place equipment back into service led to the bulk of the declines in revenue per tractor per week and OTR margin.

USX Key Performance Indicators

The brokerage division reported a 32.4 percent year-over-year decline in revenue at $39.5 million. Load counts declined 29.5 percent and revenue per load moved lower by an undisclosed amount. That said, gross margin for the division improved 390 basis points to 16.1 percent. Brokerage operating income declined 10.1 percent to $1.3 million.

Guidance unchanged

Guidance was left unchanged. “The freight environment has remained under pressure through the summer though we do expect conditions to firm, as capacity slowly exits the market while at the same time we approach a more seasonally busy time of the year. For the full-year 2019, we expect our full-year adjusted operating ratio to be in a range from 95.5 percent to 97.5 percent. To provide context, the high end of our full-year guidance range assumes that the current market environment as experienced through June and July persists through year-end,” concluded Fuller.

Management confirmed that the OR guidance implies no year-over-year earnings growth in the third or fourth quarters of 2019.

USX Stock Chart – Seeking Alpha


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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.
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