Heartland Express, Inc. HTLD reported a truly remarkable 12-month turnaround in its fourth quarter operating ratio, according to its quarterly earnings released earlier Tuesday. For the fourth quarter of 2017, Heartland reported an unadjusted operating ratio of 94% and an adjusted operating ratio of 93.1%. (The difference between the two is based on fuel surcharges.)
In the fourth quarter of this year, those figures improved to a non-adjusted OR of 79.9% and 76.7% for the adjusted ratio. This occurred even as the company's operating revenue slid to $147 million from $165.7 million but operating expenses dropped to $117.4 million from $155.84 million.
That pushed up operating income to $29.5 million from $9.9 million a year earlier. Heartland's quarterly income statements don't reveal a great deal of operating data, such as revenue per tractor or miles driven, so it is difficult to know what steps the company would have taken to record such significant improvements in operating income that led to the more than 1,000 basis point rise in OR. (There also is no SEC filing as of yet, which is pretty much the norm now for companies dealing with the government shutdown.)
In a prepared statement, Heartland CEO Michael Gerdin noted that for the four quarters of the year, its OR went sequentially from 91.7% in the first quarter to 85.8% in Q2, 83.4% in Q3 and finally the 79.9% for Q4. "During these same periods we maintained our discipline by carrying no debt on our balance sheet, rightsized our fleet, controlled costs, and focused on freight rate improvements to help our bottom line," Gerdin said in his statement. "We continue to operate our company focused on our bottom line results--past, present, and future."
On the bottom line, Heartland's net income for the quarter was $22.4 million compared to $38.6 million in the fourth quarter of 2017, but after taking out a one-time tax-related charge, the comparison is against net income of $16.6 million in 2017's fourth quarter. For the full-year, net income was up $30.3 million after that tax benefit is removed.
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One line in the financial statement that jumps out is the salaries, wages and benefits data. The company reported salaries, wages and benefits of $53.1 million compared to $67.8 million in the fourth quarter of 2017. Its purchased transportation figure also was down, to $3.0 million from $8.7 million. It appears to all come back to Heartland's stated goal of pursuing profitable operations rather than sheer volume. CFRA analyst Jim Corridore, in a report released late last week, said he had expected to see "revenues from recent acquisitions...offset by HTLD's attempts to cull less profitable freight in order to improve operating margins and profitability."
Investors appeared to like what they saw. Heartland's stock closed up slightly on a day when broader markets were weaker, with the S&P 500 down 1.42%. With Heartland's earnings the first true truckload company reporting--J.B. Hunt Transport Services JBHT is about a 50% intermodal company so it is not a perfect comparison--the strong performance seemed to support some other truckload stocks, with Werner Enterprises, Inc WERN down just 0.94% and Marten Transport, Ltd MRTN up 2.32%. But Knight-Swift Transportation Holdings KNX, which already has taken a big kick higher on the back of its announcement last week that its fourth quarter earnings were going to surprise to the upside, was down 5.12% for the day. Heartland's stock in general has outperformed other trucking stocks over the past year. According to Barchart, in the prior 12 months, Heartland was down 14.94%, Werner was off 21.53%, Knight Swift dropped 33.64%. Marten held its own better than Heartland, declining 9.36%.
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