Werner Enterprises Reports Third Quarter 2016 Revenues and Earnings

 

  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
(In thousands, except per share amounts) 2016   2015   % Change   2016   2015   % Change
Total revenues $ 508,676     $ 534,448     (5 )%   $ 1,490,159     $ 1,564,746     (5 )%
Trucking revenues, net of fuel surcharge 336,673     360,124     (7 )%   1,008,738     1,042,309     (3 )%
Werner Logistics (1) revenue 109,459     102,149     7 %   310,001     296,459     5 %
Operating income 29,074     52,800     (45 )%   91,114     143,195     (36 )%
Net income 18,920     32,076     (41 )%   57,318     87,066     (34 )%
Earnings per diluted share 0.26     0.44     (41 )%   0.79     1.20     (34 )%
                                   
(1) Formerly Value Added Services (VAS) 
                                   

OMAHA, Neb., Oct. 20, 2016 (GLOBE NEWSWIRE) — Werner Enterprises, Inc. (NASDAQ:WERN), one of the nation’s largest transportation and logistics companies, reported revenues and earnings for the third quarter ended September 30, 2016. Earnings per diluted share were $0.26 for third quarter 2016 compared to earnings per diluted share of $0.44 for third quarter 2015 and $0.25 for second quarter 2016. Excluding gains on sales of assets in both periods, earnings per diluted share increased sequentially by four cents per share from second quarter 2016 to third quarter 2016.

Third quarter 2016 freight demand showed gradual improvement from the weak second quarter freight market. We believe part of this improvement was industry specific and part was Company specific. During June 2016, to take advantage of the strengthening Dedicated market, we moved 150 trucks from One-Way Truckload, lessening the need to find freight for their trucks in the more challenged One-Way market. In September 2016, we moved an additional 100 trucks from One-Way Truckload into Dedicated. Freight volumes and transactional spot market pricing in the One-Way Truckload market improved in third quarter 2016 from the lower levels in second quarter 2016. We reduced our spot market exposure from elevated levels in second quarter 2016 to more typical levels in third quarter 2016. We experienced better than normal freight volume trends in our One-Way Truckload business in July followed by stable and steady freight trends in August and September. Freight demand thus far in October 2016 has been consistent with normal seasonal trends.

Average revenues per tractor per week increased sequentially by 1.6% in third quarter 2016 compared to second quarter 2016 due to a 0.2% decrease in average miles per truck combined with a 1.8% increase in average revenues per total mile. Average revenues per tractor per week decreased 4.7% in third quarter 2016 compared to third quarter 2015 due to a 3.5% decrease in average miles per truck combined with a 1.2% decrease in average revenues per total mile.

During third quarter 2016, we experienced gradual freight improvement which began to validate our pricing strategy. The contractual rate market became more challenging in second quarter 2016, particularly in One-Way Truckload. An excess supply of industry trucks relative to sluggish freight demand created a market in which customers pushed harder for contractual rate decreases. We chose to exit from certain contractual business that would have required significant contractual rate decreases for the next year, since we believed that this pricing was not sustainable and that freight market conditions would begin to show improvement. While we avoided mid-single digit percentage or higher contractual rate decreases in second quarter 2016, market conditions and competition necessitated agreeing to flat to slightly lower contractual rates which became effective in third quarter 2016.

In third quarter 2016, we averaged 7,216 trucks in service in the Truckload segment and 75 intermodal drayage trucks in the Werner Logistics segment. We ended third quarter 2016 with 7,175 trucks in the Truckload segment, a year-over-year decrease of 240 trucks and a sequential decrease of 80 trucks. Our Specialized Services unit, primarily Dedicated, ended third quarter 2016 with 3,930 trucks (or 55% of our total Truckload segment fleet). We again reduced our average trucks in service by 90 trucks from second quarter 2016 to third quarter 2016, in response to the freight market conditions. We are not growing our truck fleet until we see meaningful improvement in the freight and rate markets.

We are continuing our reinvestment in our fleet to reduce the average age of our trucks and trailers. Our investment in newer trucks and trailers improves our driver experience, raises operational efficiency and helps us to better manage our maintenance, safety and fuel costs. The average age of our truck fleet was 1.7 years as of September 30, 2016, which compares to an average age of 1.9 years as of September 30, 2015. Net capital expenditures in the first nine months of 2016 were $294 million compared to $251 million in the first nine months of 2015. For the full year of 2016, we expect net capital expenditures of $350 million to $400 million. We expect net capital expenditures to return to more normal levels in 2017, compared to elevated levels in 2015 and 2016.

The driver recruiting market remains challenging. Several ongoing market factors persist including a declining number of, and increased competition for, driver training school graduates, a low national unemployment rate, aging truck driver demographics and increased truck safety regulations. We have taken many significant actions in the last year to strengthen our driver recruiting and retention to make Werner the preferred choice for the best drivers, including raising driver pay, lowering the age of our truck fleet, installing safety and training features on all new trucks and investing in our driver training schools. Our driver turnover rate once again improved, achieving the lowest third quarter rate in 18 years.

Gains on sales of assets were $3.1 million in third quarter 2016, including a $6.5 million gain from a real estate sale and $3.4 million of losses on equipment sales. This compares to gains on sales of assets of $6.7 million in third quarter 2015, which included a $0.7 million gain from a real estate sale. In third quarter 2016, we sold more trucks and more trailers than in third quarter 2015. We realized average losses per truck in third quarter 2016 compared to average gains in third quarter 2015 and realized similar average gains per trailer. The used truck pricing market became increasingly more difficult in third quarter 2016 due to a higher than normal supply of used trucks in the market and low buyer demand. We expect the used truck pricing market will remain difficult for at least the near term. Gains on sales of assets are reflected as a reduction of Other Operating Expenses in our income statement.

Diesel fuel prices were 17 cents per gallon lower in third quarter 2016 than in third quarter 2015 and were 2 cents per gallon higher than in second quarter 2016. For the first 20 days of October 2016, the average diesel fuel price per gallon was 5 cents lower than the average diesel fuel price per gallon in the same period of 2015 and 19 cents higher than in fourth quarter 2015. The components of our total fuel cost consist of and are recorded in our income statement as follows: (i) Fuel (fuel expense for company trucks excluding federal and state fuel taxes); (ii) Taxes and Licenses (federal and state fuel taxes); and (iii) Rent and Purchased Transportation (fuel component of our independent contractor costs, including the base cost of fuel and additional fuel surcharge reimbursement for costs exceeding the fuel base).

To provide shippers with additional sources of managed capacity and network analysis, we continue to develop our non-asset based Werner Logistics segment. Werner Logistics includes Brokerage, Freight Management, Intermodal and Werner Global Logistics (International).      

  Three Months Ended
September 30,
  Nine Months Ended
 September 30,
  2016   2015   2016   2015
Werner Logistics (amounts in thousands) $   %   $   %   $   %   $   %
Operating revenues $ 109,459     100.0     $ 102,149     100.0     $ 310,001     100.0     $ 296,459     100.0  
Rent and purchased transportation expense 91,695     83.8     86,085     84.3     255,954     82.6     251,406     84.8  
Gross margin 17,764     16.2     16,064     15.7     54,047     17.4     45,053     15.2  
Other operating expenses 12,870     11.7     11,043     10.8     37,545     12.1     32,579     11.0  
Operating income $ 4,894     4.5     $ 5,021     4.9     $ 16,502     5.3     $ 12,474     4.2  
                                                       

In third quarter 2016, Werner Logistics revenues increased $7.3 million, or 7%, and operating income dollars decreased $0.1 million, or 3%, compared to third quarter 2015. The Werner Logistics gross margin percentage in third quarter 2016 of 16.2% improved 50 basis points compared to the gross margin percentage of 15.7% in third quarter 2015. The Werner Logistics operating income percentage in third quarter 2016 of 4.5% decreased 44 basis points from third quarter 2015 of 4.9%.

In third quarter 2016, Werner Logistics continued to see strong growth in our truck brokerage and intermodal solutions despite the sluggish logistics freight market. This is a strong vote of confidence from our customers as they continue to appreciate the value of the Werner Enterprises portfolio of service offerings. We increased our Werner Logistics inside sales team by 25% year over year to facilitate growth and continue to invest in our regional office network. During third quarter 2016, we opened a new office in Omaha and renovated or expanded offices in Dallas, Atlanta and Chicago to support this continued growth. We remain confident that the depth and breadth of our portfolio strategy positions us very well for the changing regulatory environment in 2017.

Comparisons of the operating ratios for the Truckload segment (net of fuel surcharge revenues of $42.0 million and $52.4 million in third quarters 2016 and 2015, respectively, and $111.0 million and $167.2 million in the year-to-date 2016 and 2015 periods, respectively) and the Werner Logistics segment are shown below.

  Three Months Ended
September 30,
      Nine Months Ended
 September 30,
   
Operating Ratios 2016   2015   Difference   2016   2015   Difference
Truckload Transportation Services 94.2 %   86.7 %   7.5 %   92.7 %   87.5 %   5.2 %
Werner Logistics 95.5 %   95.1 %   0.4 %   94.7 %   95.8 %   (1.1 )%
                                   

Fluctuating fuel prices and fuel surcharge revenues impact the total company operating ratio and the Truckload segment’s operating ratio when fuel surcharges are reported on a gross basis as revenues versus netting against fuel expenses. Eliminating fuel surcharge revenues, which are generally a more volatile source of revenue, provides a more consistent basis for comparing the results of operations from period to period. The Truckload segment’s operating ratios for third quarter 2016 and third quarter 2015 are 94.8% and 88.3% respectively, and for year-to-date 2016 and 2015 are 93.4% and 89.2%, respectively, when fuel surcharge revenues are reported as revenues instead of a reduction of operating expenses.

Our financial position remains strong. As of September 30, 2016, we had $150.0 million of debt outstanding and $978.5 million of stockholders’ equity.

  INCOME STATEMENT
  (Unaudited)
  (In thousands, except per share amounts)
                   
  Three Months Ended
September 30,
  Nine Months Ended
 September 30,
  2016   2015   2016   2015
  $   %   $   %   $   %   $   %
Operating revenues $ 508,676     100.0     $ 534,448     100.0     $ 1,490,159     100.0     $ 1,564,746     100.0  
Operating expenses:                              
Salaries, wages and benefits 162,862     32.0     167,301     31.3     479,298     32.2     479,142     30.6  
Fuel 40,638     8.0     50,855     9.5     112,034     7.5     160,996     10.3  
Supplies and maintenance 41,027     8.1     50,283     9.4     130,559     8.8     144,328     9.2  
Taxes and licenses 21,540     4.2     22,616     4.2     64,353     4.3     66,459     4.3  
Insurance and claims 19,106     3.8     17,372     3.3     59,384     4.0     60,034     3.8  
Depreciation 51,781     10.2     49,081     9.2     152,849     10.3     143,065     9.1  
Rent and purchased transportation 133,876     26.3     122,006     22.8     379,155     25.4     360,706     23.1  
Communications and utilities 4,206     0.8     3,786     0.7     12,110     0.8     11,301     0.7  
Other 4,566     0.9     (1,652 )   (0.3 )   9,303     0.6     (4,480 )   (0.3 )
Total operating expenses 479,602     94.3     481,648     90.1     1,399,045     93.9     1,421,551     90.8  
Operating income 29,074     5.7     52,800     9.9     91,114     6.1     143,195     9.2  
Other expense (income):                  
Interest expense 749     0.1     511     0.1     1,839     0.1     1,569     0.1  
Interest income (1,055 )   (0.2 )   (760 )   (0.1 )   (3,154 )   (0.2 )   (2,088 )   (0.1 )
Other 46         32         148         257      
Total other expense (income) (260 )   (0.1 )   (217 )       (1,167 )   (0.1 )   (262 )    
Income before income taxes 29,334     5.8     53,017     9.9     92,281     6.2     143,457     9.2  
Income taxes 10,414     2.1     20,941     3.9     34,963     2.4     56,391     3.6  
Net income $ 18,920     3.7     $ 32,076     6.0     $ 57,318     3.8     $ 87,066     5.6  
                               
Diluted shares outstanding 72,406         72,478         72,364         72,546      
Diluted earnings per share $ 0.26         $ 0.44         $ 0.79         $ 1.20      

  SEGMENT INFORMATION
  (Unaudited)
  (In thousands)
           
  Three Months Ended
September 30,
  Nine Months Ended
 September 30,
  2016   2015   2016   2015
Revenues              
Truckload Transportation Services $ 384,312     $ 417,861     $ 1,136,478     $ 1,225,439  
Werner Logistics 109,459     102,149     310,001     296,459  
Other (1) 14,804     14,087     43,148     41,996  
Corporate 313     634     1,300     1,880  
  Subtotal 508,888     534,731     1,490,927     1,565,774  
Inter-segment eliminations (2) (212 )   (283 )   (768 )   (1,028 )
  Total $ 508,676     $ 534,448     $ 1,490,159     $ 1,564,746  
               
Operating Income              
Truckload Transportation Services $ 19,846     $ 48,747     $ 74,971     $ 131,901  
Werner Logistics 4,894     5,021     16,502     12,474  
Other (1) (1,191 )   (1,354 )   (4,964 )   (2,038 )
Corporate 5,525     386     4,605     858  
  Total $ 29,074     $ 52,800     $ 91,114     $ 143,195  

(1) Other includes our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities.
(2) Inter-segment eliminations represent transactions between reporting segments that are eliminated in consolidation.

  OPERATING STATISTICS BY SEGMENT
  (Unaudited)
               
  Three Months Ended
September 30,
      Nine Months Ended
 September 30,
   
  2016   2015   % Change   2016   2015   % Change
Truckload Transportation Services segment                      
Average percentage of empty miles 12.55 %   12.53 %   0.2 %   13.08 %   12.30 %   6.3 %
Average trip length in miles (loaded) 468     483     (3.1 )%   466     480     (2.9 )%
Average tractors in service 7,216     7,355     (1.9 )%   7,291     7,205     1.2 %
Average revenues per tractor per week (1) $ 3,589     $ 3,767     (4.7 )%   $ 3,547     $ 3,710     (4.4 )%
Total trailers (at quarter end) 22,655     22,495         22,655     22,495      
Total tractors (at quarter end)                      
  Company 6,355     6,710         6,355     6,710      
  Independent contractor 820     705         820     705      
   Total tractors 7,175     7,415         7,175     7,415      
                       
Werner Logistics segment                      
Average tractors in service 75     60         71     54      
Total trailers (at quarter end) 1,590     1,405         1,590     1,405      
Total tractors (at quarter end) 86     70         86     70      
                               
(1) Net of fuel surcharge revenues.                              

  SUPPLEMENTAL INFORMATION
  (Unaudited)
  (In thousands)
           
  Three Months Ended
September 30,
  Nine Months Ended
 September 30,
  2016   2015   2016   2015
Capital expenditures, net $ 33,488     $ 91,703     $ 294,014     $ 251,109  
Cash flow from operations 30,153     89,200     201,175     282,772  
Return on assets (annualized) (1) 4.4 %   8.4 %   4.6 %   7.8 %
Return on equity (annualized) 7.8 %   14.4 %   8.0 %   13.4 %
 
(1) Pursuant to the Company’s early adoption of Accounting Standards Update 2015-17 (see explanatory note on the Condensed Balance Sheet), return on assets for all periods presented reflects the impact of reclassifying the current deferred tax asset into the non-current deferred tax liability.

  CONDENSED BALANCE SHEET
  (In thousands, except share amounts)
       
  September 30,
2016
  December 31,
2015
  (Unaudited)    
       
ASSETS      
Current assets:      
Cash and cash equivalents $ 13,736     $ 31,833  
Accounts receivable, trade, less allowance of $9,080 and $10,298, respectively 252,512     251,023  
Other receivables 13,536     17,241  
Inventories and supplies 14,446     16,415  
Prepaid taxes, licenses and permits 6,949     15,657  
Income taxes receivable 13,110     20,052  
Other current assets 63,568     27,281  
Total current assets 377,857     379,502  
       
Property and equipment 2,011,888     1,908,600  
Less – accumulated depreciation 728,503     754,130  
Property and equipment, net 1,283,385     1,154,470  
       
Other non-current assets 65,137     51,675  
Total assets $ 1,726,379     $ 1,585,647  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Checks issued in excess of cash balances $ 2,665     $  
Accounts payable 72,735     70,643  
Insurance and claims accruals 71,056     64,106  
Accrued payroll 29,608     25,233  
Other current liabilities 18,249     23,720  
Total current liabilities 194,313     183,702  
       
Long-term debt, net of current portion 150,000     75,000  
Other long-term liabilities 18,275     19,832  
Insurance and claims accruals, net of current portion 114,125     125,195  
Deferred income taxes (1) 271,206     246,264  
       
Stockholders’ equity:      
Common stock, $.01 par value, 200,000,000 shares authorized; 80,533,536      
shares issued; 72,061,210 and 71,998,750 shares outstanding, respectively 805     805  
Paid-in capital 103,648     102,734  
Retained earnings 1,067,315     1,022,966  
Accumulated other comprehensive loss (16,589 )   (13,063 )
Treasury stock, at cost; 8,472,326 and 8,534,786 shares, respectively (176,719 )   (177,788 )
Total stockholders’ equity 978,460     935,654  
Total liabilities and stockholders’ equity $ 1,726,379     $ 1,585,647  
 
(1) In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update 2015-17, which requires presentation of deferred tax assets and liabilities as non-current in the balance sheet beginning January 1, 2017. The Company early-adopted the guidance in 2016 and retrospectively adjusted the December 31, 2015 presentation by reclassifying a $28.0 million current deferred tax asset into the non-current liability “Deferred income taxes”.
 

Werner Enterprises, Inc. was founded in 1956 and is a premier transportation and logistics company, with coverage throughout North America, Asia, Europe, South America, Africa and Australia. Werner maintains its global headquarters in Omaha, Nebraska and maintains offices in the United States, Canada, Mexico, China and Australia. Werner is among the five largest truckload carriers in the United States, with a diversified portfolio of transportation services that includes dedicated van, temperature-controlled and flatbed; medium-to-long-haul, regional and local van; and expedited services. The Werner Logistics portfolio includes freight management, truck brokerage, intermodal, and international services. International services are provided through Werner’s domestic and global subsidiary companies and include ocean, air and ground transportation; freight forwarding; and customs brokerage.

Werner Enterprises, Inc.’s common stock trades on The NASDAQ Global Select MarketSM under the symbol “WERN”. For further information about Werner, visit the Company’s website at www.werner.com

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are based on information presently available to the Company’s management and are current only as of the date made. Actual results could also differ materially from those anticipated as a result of a number of factors, including, but not limited to, those discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

For those reasons, undue reliance should not be placed on any forward-looking statement. The Company assumes no duty or obligation to update or revise any forward-looking statement, although it may do so from time to time as management believes is warranted or as may be required by applicable securities law.  Any such updates or revisions may be made by filing reports with the U.S. Securities and Exchange Commission, through the issuance of press releases or by other methods of public disclosure.

CONTACT: Contact:
John J. Steele
Executive Vice President, Treasurer
and Chief Financial Officer
(402) 894-3036