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Higher costs nip profits

Higher costs nip profits

The latest round of trucking quarterly financials shows mixed results, with many carriers reporting difficulty passing on rising costs to their customers

The latest round of trucking quarterly financials shows mixed results, with many carriers reporting difficulty passing on rising costs to their customers. Even some of the companies that posted fatter earnings in the first quarter said they did so in spite of difficulties in raising rates.

The bulls

Con-way Inc. said net income soared 17% to $45.5 million on 11.7% higher revenues of $1.06 billion in the first quarter compared to the same period in 2005. Its regional LTL carriers struggled to stay profitable, however, as they also failed to pass on increasing costs despite handling more freight that quarter.

For its third fiscal quarter, Celadon Group said net income increased 74.1%, to $4.7 million on 6.3% higher revenues of $115.3 million versus its fiscal 3Q in 2005.

Celadon’s results benefited from a favorable relationship between freight demand and truckload capacity, said Steve Russel, Celadon chairman & CEO. “We believe capacity growth in our industry continues to be constrained by a shortage of qualified drivers,” Russell said. “Based on the recent operating environment, including freight demand that exceeds truckload capacity, we expect to continue to achieve modest rate increases that outpace increases in our costs.”

Ryder System reported net earnings of $47.6 million for 1Q 2006, compared with $41.5 million for 1Q 2005. This marks a 14.7% jump.

“Our continued focus in the first quarter enabled us to exceed our forecast and again deliver higher earnings and organic operating revenue growth in every segment,” said Ryder chairman & CEO Greg Swienton. “This consistent performance points to the strength and stability of our largely contract-based business model.”

U.S. Xpress Enterprises, Inc. has reversed its 1Q 2005 loss of $2.1 million to a $734,000 profit for 1Q 2006. U.S. Xpress swung a profit after an 11.4% increase in revenue-- to $299.7 million-- compared with $269.1 million in the first quarter of 2005.

“Although we faced a slightly weaker truckload freight environment than expected, especially along the west coast, we achieved improvements in operating income in our truckload segment through increased pricing and from the contributions of Arnold and Total,” stated Patrick Quinn co-chairman of U.S. Xpress.

The bears

LTL operator Arkansas Best Corp. said profits declined 51.2% in 1Q 2006 to $6.1 million from the $10.5 million mark it reached over the same period in 2005, despite 8% higher revenues of $450.6 million.

Arkansas Best’s main LTL subsidiary, ABF Freight System, said 1Q profits dropped 51.2% to $8.4 million compared to $17.2 million in 1Q 2005. This came despite a 7.7% increase in revenues reaching $413.7 million in the first quarter of 2006.

The drop in earnings and margins stemmed from a failure to pass on rising costs, the carrier said. “Adjusted for the Easter effect, April tonnage to this point is approximately 4% over the same period last year, [but] total billed revenue per hundredweight excluding fuel surcharges increased by just 1.1%,” said Robert Davidson, president & CEO of Arkansas Best, the primary LTL subsidiary of ABF.

SCS, which controls Jevic and Saia, saw its earnings drop about 40% to $2.4 million, despite a 13% revenue boost to $287 million. Its Jevic subsidiary—a hybrid truckload/LTL—saw increasing competition that led to a revenue drop. Yet Saia, a regional LTL, saw revenues and profits increase.

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