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Werner ready to navigate a downturn

Noisy Q3 misses expectations, dedicated continues to shine

Werner's model was built to perform during soft patches. (Photo: Jim Allen/FreightWaves)

Werner Enterprises said it’s prepared for a “subdued peak season.” Management from the truckload carrier said the business model is more “durable” today than it was heading into prior downturns. 

Werner’s (NASDAQ: WERN) truckload fleet is 63% dedicated, operating under contracts with customers that guarantee committed capacity. Two-thirds of that freight is tied to discount retailers and one-sixth is in the food and beverage vertical. Both sectors have performed well in past freight recessions, management said on a Wednesday evening call with analysts.  

Also, 25% of its one-way TL business is constructed to be stickier than in the past, with key customer agreements in place.

Chairman, President and CEO Derek Leathers said he believes this downturn will be shallow as cost pressures are likely to push small carriers out of the market quickly. He said net deactivations of operating authorities have occurred in 19 of the past 24 weeks, accelerating further in the most recent four-week period. He also said recent conversations with fuel providers indicated that account delinquencies are rising among their carrier customer base.

Many drivers ventured off on their own during the pandemic and haven’t had to navigate a down cycle yet. A muted peak season, high interest rates pressuring equipment financing, elevated fuel prices and a 40% reduction in spot rates are obstacles facing first-time owners.

“While peak season this year is underwhelming thus far, it will only hasten the capacity correction that is already under way,” Leathers said.


The company reported third-quarter adjusted earnings per share of 90 cents, 7 cents light of consensus but 11 cents ahead of the year-ago period. The result excluded insurance and claims expenses for a verdict that is being appealed and costs tied to prior acquisitions.

A $6.2 million year-over-year (y/y) increase in gains on equipment sales provided an 8-cent tailwind to EPS. Werner sold more trucks compared to the year-ago quarter and booked higher gains on both trucks and trailers in the recent period. However, corporate and other recorded a $3.8 million y/y reduction in operating income due to startup headwinds at its driver training schools.

Table: Werner’s key performance indicators

Dedicated revenue increased 16% y/y to $314 million (excluding fuel surcharges) as average trucks in service increased 6% and revenue per truck per week was up 9%. Guidance for revenue per truck per week in the unit during the fourth quarter calls for a 6% to 8% y/y increase. The metric was 8.6% higher year to date through the third quarter.

“During October, Dedicated freight demand remained strong, and One-Way Truckload demand was steady from third quarter with much fewer project and surge opportunities as we enter peak season,” a news release read.

One-way TL revenue was basically flat y/y at $190 million (excluding fuel), with revenue per truck per week falling 2% y/y. Revenue per total mile was up 2.5% y/y in the quarter but is forecast to be flat to down 3% y/y during the fourth quarter. A tough comp from a year ago (+19.2% y/y) and an estimated 60% to 70% reduction in premium pricing opportunities are the headwinds.

The TL segment produced an 85.1% adjusted operating ratio, 90 basis points better y/y. Strength in the dedicated segment overcame cost inflation in areas like driver costs and maintenance expenses. The division normally sees 200 bps of margin improvement from the third to the fourth quarter each year, but the expectation is for the OR to hold steady this year (330 bps worse y/y) as project and other peak season opportunities have faded.

“A 300-400 basis points underlying contraction in OR is benign in the context of the huge reduction in peak pricing opportunities, and supports a higher trough earnings framework than transportation stocks are discounting,” Deutsche Bank (NYSE: DB) analyst Amit Mehrotra told clients in a note. “This ‘trough’ would be in line with the peak of the last cycle.”

Werner’s TL segment reported adjusted ORs of 86.4% and 84.1% in the third and fourth quarters of 2018.

“Regardless of where we’re at with a subdued fourth quarter, it’s my belief this cycle is shorter in duration and less severe than what we’ve seen in others,” Leathers said. “We want to be prepared and ready coming out the other end to hit the ground running.”

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One Comment

  1. Gary

    Yea their profits are up some but the pay for drivers are still the same since I worked their years ago so till companies truly pay for experience they can just continue to lose money hiring anyone who can see over steering wheel

Comments are closed.

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.