Edited Transcript of WERN earnings conference call or prese…

Edited Transcript of WERN earnings conference call or prese…

OMAHA Oct 26, 2019 (Thomson StreetEvents) — Edited Transcript of Werner Enterprises Inc earnings conference call or presentation Thursday, October 24, 2019 at 9:00:00pm GMT

* Derek J. Leathers

Werner Enterprises, Inc. – President & CEO

* John J. Steele

Werner Enterprises, Inc. – Executive VP, Treasurer & CFO

Robert W. Baird & Co. Incorporated, Research Division – Senior Research Analyst

* Christian F. Wetherbee

Stifel, Nicolaus & Company, Incorporated, Research Division – MD of Global Transportation and Logistics

* Scott H. Group

Good afternoon, and welcome to the Werner Enterprises’ Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Earlier this afternoon, the company issued an earnings release for its third quarter 2019 financial results and posted an accompanying presentation. These materials are available at the company’s website at werner.com, by clicking on Investors, then News and Events, and then Webcasts and Presentations.

Today’s webcast is being recorded and will be available for replay beginning later this evening. Before we begin, please direct your attention to the disclosure statement on Slide 2 of the presentation as well as the disclaimers included in the press release related to forward-looking statements. Today’s remarks contain forward-looking statements that may involve risks, uncertainties and other factors that could cause actual results to differ materially. Additionally, the company reports results using non-GAAP measures, which it believes provides additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the tables attached in the earnings release and at the appendix in the slide presentation.

And I would now like to turn the conference over to Mr. Derek Leathers, President and CEO. Mr. Leathers, please go ahead with your presentation.

Derek J. Leathers, Werner Enterprises, Inc. – President & CEO [2]

Thank you, and good afternoon, everyone. On the call today with me is John Steele, our CFO.

Turning to Slide 4 and our company snapshot. In 2018, 77% of revenue was generated in Truckload Transportation Services, or TTS, with the remainder coming from Werner Logistics. TTS is made up of Dedicated, which comprises 57% of our fleet, and One-Way Truckload, which is 43% of our fleet. Over half of our revenue is retail, 18% is food and beverage, 18% is manufacturing and industrial with the remaining 12% Logistics and other.

We focus on serving discount retailers that sell more necessity-based products that tend to be less economically sensitive and historically perform well in slower growth or recessionary economic periods. We have a diversified customer base with less than half of our revenue coming from our top 10 customers and 74% spread across our top 50.

Next, let’s move to Slide 5 for a brief overview of our third quarter and year-to-date financial performance. Overall, the trucking freight market in the third quarter 2019 was meaningfully softer than the same period a year ago, with slight seasonal improvement in September that thus far has carried forward into October. For reference, a year ago in third quarter 2018, we had an extremely strong freight market and we produced a record 16% rate per total mile increase year-over-year in One-Way Truckload.

The strong third quarter 2018 freight market and our outstanding execution in that market resulted in record high third quarter earnings a year ago. For this year’s third quarter, it made for a challenging comparison. Despite the tough comp, our team performed well, and we produced the second-highest third quarter earnings in our history.

For the quarter, revenues declined 2% to $618 million. On an adjusted basis, EPS decreased 11% to $0.57 a share. Adjusted operating income decreased 12%, and our total company adjusted operating margin declined by 90 basis points to 8.8%.

The adjusted operating margin and earnings decline were due to lower results in One-Way Truckload and Logistics, while Dedicated improved its performance. The softer freight market and small sequential fleet growth in One-Way Truckload in the quarter contributed to spot miles of 13%, up sequentially from 10% and up from 9% year-over-year.

Spot market miles in One-Way Truckload were higher in July and August and were lower in September.

Last year, the very robust freight market produced several project and surge freight opportunities. In the year ago period, these events added over 2 percentage points to our rate per loaded mile in One-Way Truckload and contributed $0.04 a share to our third quarter 2018 earnings. In third quarter 2019, a few smaller scale projects and surge opportunities began to occur in the latter part of the quarter.

Currently, we expect freight to seasonally strengthen sequentially in fourth quarter 2019, and we expect a peak season that is solid, but not as strong as the 2018 peak season. Werner Dedicated again performed well, delivering a strong operating margin that was better than third quarter 2018 and achieving continued revenue per truck growth, despite the softer year-over-year freight market.

Year-to-date, revenues increased 2%, adjusted EPS increased 6% and adjusted operating income increased 5%. We expanded our adjusted operating margin by 20 basis points through our focus on execution and cost management in a tougher freight environment. I’d like to sincerely thank all our hard-working Werner associates for their continued efforts.

Reflecting our investment in a best-in-class fleet, we ended the third quarter with 8,055 total trucks in TTS, an increase of 305 trucks year-over-year and up 120 trucks sequentially, just slightly above our guidance.

Now I’ll turn the call over to John to discuss our financial results in more detail. John?


John J. Steele, Werner Enterprises, Inc. – Executive VP, Treasurer & CFO [3]


Thank you, Derek, and good afternoon. On Slide 7, our additional financial performance drivers. Total revenues declined 2%. Our TTS revenues per truck per week net of fuel declined 1.5% due primarily to tough comps and higher spot miles in One-Way Truckload, while TTS average trucks grew by nearly 4%. Revenues in our Logistics segment declined 6%.

The operating income reduction was due to a 140 basis point decrease in TTS adjusted operating margin and a 120 basis point decrease in Logistics operating margin. These operating margin declines were due to comparing to a very strong freight and rate market in third quarter 2018, which negatively impacted margins in One-Way Truckload and Logistics.

In addition, our sequential truck growth of 120 trucks in third quarter 2019 was more weighted to One-Way Truckload than expected, largely due to certain planned Dedicated fleets that were temporarily delayed. In the last few weeks, we are beginning to see these trucks shift from One-Way into Dedicated.

Moving to adjusted EPS, the decrease was due to 14% lower adjusted net income offset by 3% fewer diluted shares outstanding. Beginning on Slide 8, let’s look at our third quarter results for our TTS segment in more detail. TTS revenue declined 1% to $480 million, primarily caused by $11.2 million of lower fuel surcharge revenues due to lower fuel prices, a 1.5% decline in revenues…

Moving & Transportation Services Jon Cartu

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