The share price of US-based Heartland Express has bounced back from its low of $16.8, a level not far off a 52-week trough of $15.3, and its latest trading update boosted confidence among investors.
However, second-quarter results were only mildly encouraging, given its rich valuation.
Quarterly revenues fell 16% to $160.7m, which was in line with its 2016 first-quarter performance. As with the first three months, the drop in second-quarter sales was not offset by the fall in operating costs, yielding a higher operating ratio during the quarter.
Excluding fuel surcharges, revenues fell 12.3% to $145m year-on-year, primarily as a result of lower miles driven “due to softer freight volumes in the second quarter”. As a result, reported operating income (EBIT) plunged 31.3% to $24.5m from $35.7m a year earlier, although EBIT was only $5.2m lower year-on-year once lower gains on disposal of property and equipment are excluded for comparable purposes.
Net income, meanwhile, hit $16.3m, down from $23m one year earlier. The share count shrank 5.2%, but challenging market dynamics nonetheless impacted earnings per share, down to $0.20 and $0.37, respectively, in the second quarter and in the first half of the year, from $0.27 and $0.47 one year earlier.
As Heartland continues to invest to maintain a fleet of trucks and trailers equipped “with the latest technology available in the industry”, dividends were flat at $0.02 and $0.04 for the second quarter and for the first half of the year, respectively, which means that critical decisions with regards to capital allocation have yet to be made.
The balance sheet is rock-solid, however, indicating a good working capital management with a gross cash pile standing at $77m from $69.7m in the prior quarter.
Chief Executive, Michael Gerdin, said, “Throughout the first half of 2016 we continued to experience downward pressure on freight rates due to the softness in freight volumes resulting from the available capacity in the industry.”
“Typically, freight volumes improve during the second quarter as compared to the first three months of the year but that has not been our experience during 2016 as freight volumes didn’t improve until mid-June,” he noted, adding that the group remains “committed and focused to returning our operating ratio to the low 80’s”.
Its shares trade on rich P/E and EV/EBITDA multiples of 25x and 7.6x on a forward basis, yielding just 0.5%. They are down almost 20% over the past two years.
Source: Transport Intelligence, August 2, 2016
Author: Alessandro Pasetti