Werner Enterprises, Inc. (NASDAQ: WERN) reported strong earnings in the fourth quarter of 2018, posting a diluted earnings per share (EPS) of $0.77. This topped analyst expectations, with the average estimate of 10 analysts surveyed by Zacks Investment Research coming in at $0.68.
The company realized a gain of $2.4 million, or $0.03 per share, related to the sale of real estate in the fourth quarter of 2018.
Werner's adjusted diluted EPS was $0.75, up 79 percent from the same quarter of 2017. The company posted total revenue of $646.4 million, up 14 percent from the same quarter in 2017. Total revenue was basically in-line with Deutsche Bank's expected $650 million.
The company, which hosted its inaugural investor conference call this quarter, attributed total revenue growth primarily to dedicated fleet expansion, logistics growth, higher contractual rates, increased customer project revenues and lane mix changes.
Operating income in the fourth quarter of 2018 climbed 66 percent over the same quarter in 2017, coming in at $74.9 million. Adjusted operating income climbed 63 percent to $73.6 million.
Operating margin of 11.6 percent increased 370 basis points (bps) due to revenue increases that exceeded cost increases, which benefited from a newer fleet and low driver turnover. Adjusted operating margin of 11.4 percent improved 350 bps from 7.9 percent for the same quarter in 2017.
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Werner's driver turnover reached a 20-year low in the fourth quarter, according to Werner CEO Derek Leathers.
"Beginning three years ago, we made significant investments in our "five T's" strategy of trucks, trailers, talent, technology and terminals. Those investments, combined with our commitment to raise the bar on customer service, are delivering results," Leathers said. "We believe we are uniquely positioned to continue advancing our market leadership given our new fleet, experienced driver and non-driver workforce and our diversified portfolio of dedicated truckload, one-way truckload and asset-backed logistics service offerings. In addition, our strong cash flow, flexible balance sheet and low debt level position Werner well for the future."
Revenue climbed 13 percent over the fourth quarter of 2017 in the truckload transportation services (TTS) segment, reaching $494.7 million. The company attributed this increase to a 4.7 percent jump in average trucks in service, a 6.9 percent climb in average revenue per truck and a $10 million increase in fuel surcharge revenue.
"The average revenue per truck increase was due primarily to an increase in average revenue per total mile, partially offset by a decrease in average miles per truck," Werner's earnings report reads. "The increase in average revenue per total mile was due primarily to higher contractual rates, increased customer project revenue, dedicated fleet expansion and lane mix changes. The growth in our shorter-haul dedicated fleet is primarily responsible for the decline in our average miles per truck, as the average miles per truck in our one-way truckload fleet decreased only slightly year over year."
Company truck miles increased about five million miles in 2018's fourth quarter, while independent contractor miles increased by about two million miles, indicating a lessening reliance on independent contractors.
During the company's earnings call, Werner CFO John Steele highlighted changes the truckload giant has made to make sure everything runs as efficiently as possible, including implementing stricter hiring standards for drivers.
In the TTS segment, operating income of $66.8 million increased 50 percent, while adjusted operating income increased 53 percent to $68.0 million. Operating margin of 13.5 percent increased 340 bps from 10.1 percent. Adjusted operating margin of 13.7 percent increased 360 bps from 10.1 percent.
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Werner reported 7,787 trucks in service in the fourth quarter of 2018, an increase of 351 trucks year-over-year and 59 trucks over the third quarter of 2018. Dedicated unit trucks at quarter-end totaled 4,500, or 58 percent of the total TTS segment fleet, compared to 4,000 trucks, or 54 percent, in 2017.
The TTS segment posted an operating ratio of 86.5 percent, down from 89.9 percent year-over-year.
Werner's logistics segment posted a 22 percent increase in revenue, coming in at $137.2 million. The revenue increase within the segment was led by brokerage, which posted 23 percent revenue growth.
The segment's gross margin percentage increased 240 bps to 16.8 percent, which the company attributed to pricing strength in transactional brokerage and intermodal. The segment's operating margin increased 350 bps to 5.3 percent due to effective cost management.
"We continue to see strong customer interest in the Werner Logistics value proposition, particularly as the market remains strong and shippers tend to consolidate their logistics business with the stability of larger asset-backed logistics providers," the company's earnings report stated.
Werner posted a strong outlook for 2019, including 3 to 5 percent truck growth. Leathers said the company intends to maintain the average age of its truck and trailer fleet at or near current levels of 1.8 and 4.1 years, respectively.
Leathers said the company's newly instated conference calls and inclusion of additional operating KPIs in earnings reports is an intentional step toward more transparency from the company.
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