Analyst sees $200M profit lever from service enhancements
Less-than-truckload carrier Saia said demand weakened as the third quarter progressed. The company reported earnings per share of $3.67 Monday before the market opened, missing analysts’ forecasts by 3 cents.
The EPS result was 81 cents higher year over year, “despite a somewhat softer demand environment experienced over the last several weeks of the quarter,” Fritz Holzgrefe, president and CEO, stated in a news release.
The year-ago period excluded 12 cents per share associated with gains on real estate sales. A 100-basis-point y/y decline in the tax rate was a 5-cent tailwind to EPS in the recent quarter.
Revenue increased 18% y/y to $730 million as a similar increase in revenue per hundredweight, or yield, offset a less than 1% decline in tonnage. Shipments fell nearly 3% but weight per shipment was up 2%. Excluding fuel surcharges, yield increased 8% y/y, “reflecting a continuation of the constructive LTL pricing environment,” Holzgrefe noted.
Saia’s revenue (excluding fuel) was up 8% y/y in the quarter.
Deutsche Bank (NYSE: DB) analyst Amit Mehrotra was also bullish on the yield results: “It’s notable, also, that the company’s yield including fuel improved sequentially despite a sequential headwind in fuel surcharge … this means underlying mix/pricing continues to move in the right direction.”
Mehrotra cautioned that the bulk of the carrier’s profit improvement in 2022 will likely be tied to higher fuel prices, potentially creating an earnings headwind next year if diesel prices retreat. LTL surcharges are tied to base rates on a sliding scale, allowing carriers to over-earn in periods of fuel price inflation.
However, he still sees $200 million in revenue-per-shipment opportunities for Saia as the company better aligns the rates it charges with its improved service metrics. All in, he thinks 2023 EPS will shake out closer to $12 versus the current consensus estimate of more than $13.
The company reported an 82.4% operating ratio, 110 bps better y/y excluding the prior-year gain. Growth in revenue per shipment outpaced growth in adjusted cost per shipment (excluding the gain) by just 20 bps in the quarter.
“I am pleased with the year-over-year operating ratio improvement and that we were able to achieve that while still being able to provide our employees with a wage increase in July,” CFO Doug Col stated.
Col said depreciation expense ramped higher as the company has been taking delivery of new equipment. However, relief in maintenance and purchased transportation expenses should provide an offset moving forward. The company plans to execute more miles with company assets and drivers versus third-party capacity.
The biggest move in expenses in the quarter was on the salaries, wages and benefits line, which was 420 bps lower y/y as a percentage of revenue.
Net capital expenditures are expected to equal $500 million during 2022.
The carrier has opened 11 new facilities in 2022, including the addition of five sites in the third quarter and one in October. It doesn’t have any other openings planned for the year but guided to 10 to 15 site additions next year.
“Customer response to our expanded service capabilities continues to be positive and we believe that the terminal expansion strategy is enabling us to provide differentiated service levels,” Holzgrefe added.
The company ended the quarter with a net cash position 73% higher y/y at $115 million.