Margins under pressure at Werner Enterprises

Omaha-based Werner Enterprises finds itself in an uncomfortable position. Falling revenue and rising staff costs were limited in their impact on operating income in the first quarter thanks to falling fuel costs – but even so its quarterly results did not make for a happy reading.

“Our first quarter 2016 freight demand was softer than the first quarters of 2015 and 2014; however, it was consistent with our average freight demand in the first quarters of 2013 and 2012,” the trucking company said at the end of April, adding that while truckload capacity is currently available, “we believe significantly lower truck orders in recent months combined with the upcoming changes in trucking regulations should begin to tighten capacity [in the] market in the next few quarters.”

Quarterly gross revenues dropped 2.6% to $482m on a reported basis, while operating costs fell 1.5% year-on-year, but did little to prevent a drop in operating income, with EBIT down 15% to $32.4m. Net income similarly declined to $20m from $23.1m, but dividends per share rose to $0.06 from $0.05 year-on-year, with a forward yield now hovering around 1%.

Meanwhile, earnings per share fell to $0.28 from $0.32 on a constant share count basis.

Cash and cash equivalents are falling – down to $20m from $31m at the end of December and from $59m one year earlier –  but positive trends are visible for receivables and payables, and net working capital requirements fell to $153m from almost $200m one year earlier.

The balance sheet appears to be solid, despite core cash flows being significantly impacted by lower net income, lower gains from disposal of property and equipment, as well as insurance and claim accruals.

Operating cash flow was $91m, down 25% year-on-year, while capital expenditures rose significantly, up 14% to $123m in Q1.

The group had negative free cash flow in Q1, when it burned about $360,000 of cash in each calendar day, but net leverage remains low.

Its outstanding debts totalled $75m, while its debt maturity profile is manageable.

As of 31 March, the group said it had “unsecured committed credit facilities with three banks as well as a term commitment with one of these banks. We had with Wells Fargo Bank, a $100m credit facility which will expire on July 12, 2020, and a $75m term commitment with principal due and payable on September 15, 2019. Subsequent to the end of the quarter, in April 2016, we borrowed $20m. We had an unsecured line of credit of $75m with US Bank, which expires on 13 July 2020.”

“We also had a $75m credit facility with BMO Harris Bank, which will expire on 5 March 2020,” it added.

Source: Transport Intelligence, 1st June 2016

Author: Alessandro Pasetti