Chattanooga-based truckload (TL) carrier U.S. Xpress (NYSE: USX) lowered its financial outlook for the second quarter 2019 as well as the full year.
The company said that current unfavorable market conditions have caused it to raise its adjusted operating ratio (OR) target to 97.5 percent for the second quarter 2019 versus the previous guidance, which called for sequential improvement from the 95.7 percent mark reported in 2019’s first quarter.
The lower the OR, operating expenses as a percentage of revenue, the more operating income earned.
Further, the carrier said that it now expects a full-year 2019 OR of 95.5 percent to 97.5 percent compared to the prior guidance of 93 percent. The press release said that the high-end of the new guidance range assumes “a continuation of the lackluster market conditions as seen in June through year-end.”
“The freight market has not exhibited typical seasonal improvement, which we attribute to a combination of trade, industrial production, weather and other factors. In addition, truckload industry capacity has increased year-over-year, as an attractive spot market through the end of 2018 and higher driver pay resulted in incremental trucks and drivers entering the market. The resulting impact on supply and demand has caused revenue per mile and revenue per truck in our Truckload segment to fall below expectations. The change in our guidance is based primarily on the change in freight market dynamics. Importantly, our internal initiatives continue to generate revenue and cost improvement, and we see much room for further operational gains,” said U.S. Xpress’ President and Chief Executive Officer Eric Fuller.
At an investor conference in May, Fuller acknowledged that the normal seasonal uptick in demand typically seen in April and May was weaker than normal. At the time, he said that the 93 percent OR target was still achievable as the company has some significant cost levers, notably insurance expense, left to pull. However, he conceded that some of the improvement in operating results would be dependent on the economy.
A myriad of headwinds have led to the erosion of fundamentals in the TL industry. Prolonged winter weather and flooding, trade concerns on multiple fronts and tough year-over-year comparisons from 2018’s spike in TL shipments have been named as primary culprits. That said, the overwhelming drag on the industry has been excess capacity, which was added in significant amounts in 2018 and into 2019 as spot market rates surged and many fleet owners used favorable market dynamics to grow their truck counts.
These headwinds have been well-discussed by many industry analysts as the primary reasons for lowering their earnings estimates for the TLs heading into earnings season, which begins Monday, July 15 when J.B. Hunt (NASDAQ: JBHT) reports after the close of the stock market.
USX also announced that it is lowering its capital expenditure plan for 2019 to a range of $110 to $130 million versus the prior range of $170 to $190 million.
“The net capital expenditure difference is expected to involve a combination of deferred tractor deliveries, and a reduction of the amount of planned replacement of leased equipment with owned. Overall tractor and trailer fleet age is not expected to change materially versus prior expectations. Our balance sheet remains solid, and we anticipate remaining comfortably within our financial covenants and liquidity target through the balance of the year and beyond,” said Fuller.
Shares of USX were 3.3 percent lower in after hours trading according to Seeking Alpha.
Bill williamson
Not really knowing what all this means, can you tell us in English?