Saia uses debt to finance heavy investment

After a year of record profits, Saia had a difficult start to 2016, with first-quarter revenues down 1.1% to $290m year-on-year, and operating income plunging 17% to $17.6m on the back of mildly rising operating costs, which yielded a higher operating ratio of 93.9 compared to 92.8 in the prior year.

Its quarterly results and trailing trends indicate that operating and net income margins may have peaked in 2015, having fallen 120 basis points and 70 basis points, respectively, to 6.1% and 3.6% year-on-year. The company burned cash in the first quarter, and turned to debt to finance new investment.

Saia is another US-based LTL provider that does not pay dividends, but its relatively attractive valuation and solid financials suggest it could buy assets or be bought out. In early 2015, it struck a $25m earnings-accretive deal with LinkEx, a diversified, asset-light, 3PL based in Dallas that commanded a 0.7x take-out revenues multiple.

Nonetheless, first-quarter net income fell 16.6% to $10.6m on a comparable basis, while diluted earnings per share were $0.42 compared to $0.49 in the first quarter of 2015. Interest expenses were marginally lower, while the corporate tax rate fell more than 100 basis points year-on-year.

Salaries and wages rose, and so did operating taxes and licenses as well as claims and insurance expenses, but were offset by lower purchased transportation costs and fuel costs, which helped it maintain a virtually unchanged cost base, up only 0.2% year-on-year.

Operating cash flow is also under pressure, down to $16.3m from $26.1m year-on-year, mainly due to rising receivables, while capital expenditures (excluding equipment acquired with capital leases) rose from $30m to $54m in the first quarter – as a result, Saia used $38m of borrowings to cover a cash shortfall from operations during the quarter.

With $238,000 cash and cash equivalents on the balance sheet at the end of March, it plans net capital expenditures of about $140m for the full year.

President and chief executive Rick O’Dell said, “While we were not able to match last year’s record first quarter earnings results, I am pleased with the trajectory of our productivity and expense control initiatives.”

Saia continues “to see benefits in the areas of dock productivity and maintenance expenditures, while maintaining service and advancing quality initiatives,” O’Dell said, adding that it also reduced “purchased transportation expense, which represented 4.3% of revenue compared to 6% of revenue in the first quarter last year”.

LTL shipments per workday fell by 0.8% and LTL tonnage per workday declined 3.4%, while LTL revenue per hundredweight increased 2.1% 

“Despite no noticeable improvement in the level of general economic activity, we secured average rate increases of 5.3% on contractual renewals in the period,” O’Dell added.

Source: Transport Intelligence, June 29, 2016

Author: Alessandro Pasetti