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Werner Enterprises Reports Third Quarter 2018 Revenues and Earnings

  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
(In thousands, except per share amounts) 2018   2017   % Change   2018   2017   % Change
Total revenues $ 629,735     $ 528,643     19 %   $ 1,811,549     $ 1,549,372     17 %
Trucking revenues, net of fuel surcharge 409,306     351,114     17 %   1,168,588     1,029,036     14 %
Werner Logistics revenues 129,422     104,568     24 %   380,854     305,225     25 %
Operating income 63,386     35,874     77 %   149,284     98,759     51 %
Net income 47,514     22,517     111 %   113,585     61,755     84 %
Earnings per diluted share 0.66     0.31     114 %   1.57     0.85     84 %
                       

OMAHA, Neb., Oct. 18, 2018 (GLOBE NEWSWIRE) -- Werner Enterprises, Inc. (NASDAQ: WERN), one of the nation’s largest transportation and logistics companies, reported improved revenues and earnings for the third quarter ended September 30, 2018. Earnings per diluted share increased 114% and were $0.66 for third quarter 2018 compared to earnings per diluted share of $0.31 for third quarter 2017.

Third quarter 2018 freight demand in our One-Way Truckload fleet was much stronger than normal in July and was stronger than normal in August and September. Freight demand thus far in October 2018 is stronger than normal.

Average revenues per tractor per week increased 10.3% in third quarter 2018 compared to third quarter 2017 due to a 13.4% increase in average revenues per total mile, partially offset by a 2.7% decrease in average miles per truck. Our average revenues per total mile increase expectation for the full year 2018 compared to 2017 is now in the high end of the 9% to 12% range that we noted in our second quarter 2018 earnings release. The increase in average revenues per total mile was due primarily to higher contractual rates, more freight choices with higher rates, support for customer surge business, lane mix changes and growth in our Dedicated business. The growth in our shorter-haul Dedicated fleet is responsible for the decrease in our average miles per truck, as the average miles per truck in our One-Way Truckload fleet increased slightly year over year.

Changing shipper freight replenishment patterns and faster on-time service requirements are occurring as some customers shift freight from longer-haul one-way fleets to shorter length of haul dedicated fleets. As a result, more trucks are needed to service an increasing amount of shorter-haul freight. Dedicated freight generally has lower miles per truck and higher rate per total mile metrics than longer-haul one-way truckload freight. Our 5.7% growth in average trucks in service and 2.8% growth in total fleet miles in third quarter 2018 was primarily due to the year-over-year growth in Dedicated.

In third quarter 2018, we averaged 7,728 trucks in service in the Truckload Transportation Services (Truckload) segment and 43 intermodal drayage trucks in the Werner Logistics segment. We ended third quarter 2018 with 7,750 trucks in the Truckload segment, a year-over-year increase of 375 trucks and a sequential increase of 50 trucks. Our Dedicated unit ended third quarter 2018 with 4,400 trucks (or 57% of our total Truckload segment fleet) compared to 3,955 trucks (or 54% of our total Truckload segment fleet) at the end of third quarter 2017.

We are continuing to invest in newer trucks and trailers in 2018 to improve our driver experience, raise operational efficiency and more effectively manage our maintenance, safety and fuel costs. The average age of our truck fleet remains low by industry standards and was 1.8 years as of September 30, 2018. Net capital expenditures in the first nine months of 2018 were $289 million compared to $121 million in the first nine months of 2017. We expect net capital expenditures for 2018 to be in the range of $350 million to $375 million. As a result of our prior multi-year elevated capital expenditure investment, we expect net capital expenditures in 2019 to be lower and below $300 million.

The driver recruiting market is increasingly difficult, which limited our sequential fleet growth in third quarter 2018. Several ongoing market factors persist including a declining number of, and increased competition for, driver training school graduates, an historically low national unemployment rate, aging truck driver demographics and increased truck safety regulations including the regulation changes for electronic logging devices. We continue to take significant actions to strengthen our driver recruiting and retention to make Werner a preferred choice for the best drivers, including raising driver pay, maintaining a new truck and trailer fleet, purchasing best-in-class safety and training features for all new trucks, investing in our driver training school network and collaborating with customers to improve or eliminate unproductive freight. These efforts continue to have positive results on our driver turnover with our third quarter 2018 driver turnover percentage being one of the lowest in the last 20 years.

Due to growth in company trucks and a decline in independent contractor trucks in third quarter 2018 compared to third quarter 2017, company truck miles increased by approximately 8 million miles and independent contractor miles decreased by approximately 2 million miles. This caused a shift in expense from rent and purchased transportation expense to most other operating expense categories in third quarter 2018 compared to third quarter 2017.

Gains on sales of assets were $4.6 million in third quarter 2018 compared to $2.2 million in third quarter 2017. In third quarter 2018 compared to third quarter 2017, we sold over 40% more trucks and a comparable number of trailers. We realized higher average gains per truck and trailer in third quarter 2018 compared to third quarter 2017. The used truck pricing market for the Company’s used trucks has improved over the last few quarters, while we continued to make progress increasing the number of our late-model trucks sold via our proprietary retail network. We expect gains on sales of equipment to decline sequentially in fourth quarter 2018 and in 2019 due to a planned reduction in the number of trailers to be sold. Gains on sales of assets are reflected as a reduction of Other Operating Expenses in our income statement.

Diesel fuel prices were 52 cents per gallon higher in third quarter 2018 than in third quarter 2017 and were 2 cents per gallon higher than in second quarter 2018. For the first 18 days of October 2018, the average diesel fuel price per gallon was 55 cents higher than the average diesel fuel price per gallon in the same period of 2017 and 48 cents higher than in fourth quarter 2017. 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).

Comparisons of the operating ratios for the Truckload segment (actual and net of fuel surcharge revenues of $68.4 million and $50.2 million in third quarters 2018 and 2017, respectively, and $197.2 million and $147.6 million in the year-to-date 2018 and 2017 periods, respectively) are shown below.

  Three Months Ended
September 30,
      Nine Months Ended
September 30,
   
Truckload Transportation Services 2018   2017   Difference   2018   2017   Difference
Operating ratio 87.9 %   91.7 %   (3.8 )%   90.2 %   92.2 %   (2.0 )%
Operating ratio, net of fuel surcharge 85.9 %   90.5 %   (4.6 )%   88.6 %   91.1 %   (2.5 )%

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.

During third quarter 2018, the court entered the final judgment on the apportionment of fault related to an adverse jury verdict rendered May 17, 2018, which we are appealing. We incurred insurance and claims  expense of $2.8 million in third quarter 2018, or three cents per share, for accrued interest and legal fees related to this matter. For more information on the claim see the Commitments and Contingencies footnote in our Form 10-Q for second quarter 2018. We expect to accrue $1.2 million of insurance and claims expense per quarter for post-judgment interest pursuant to this case, until such time as the outcome of our appeal is finalized. We also reached a favorable settlement in third quarter 2018 related to a property tax dispute, that reduced taxes and licenses expense by $4.9 million, or five cents per share, for property taxes that were previously expensed and paid over a multi-year period.

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, Werner Global Logistics (International) and Werner Final Mile.

  Three Months Ended
September 30,
  Nine Months Ended
September 30, 
  2018   2017   2018   2017
Werner Logistics (amounts in thousands) $   %   $   %   $   %   $   %
Operating revenues $ 129,422     100.0     $ 104,568     100.0     $ 380,854     100.0     $ 305,225     100.0  
Rent and purchased transportation expense 108,870     84.1     89,507     85.6     322,064     84.6     259,277     84.9  
Gross margin 20,552     15.9     15,061     14.4     58,790     15.4     45,948     15.1  
Other operating expenses 15,776     12.2     13,743     13.1     45,655     12.0     39,296     12.9  
Operating income $ 4,776     3.7     $ 1,318     1.3     $ 13,135     3.4     $ 6,652     2.2  

In third quarter 2018, Werner Logistics revenues increased $24.9 million, or 24%, and operating income dollars increased $3.5 million, or 262%, compared to third quarter 2017. The Werner Logistics gross margin percentage in third quarter 2018 of 15.9% increased 148 basis points compared to the gross margin percentage of 14.4% in third quarter 2017. In third quarter 2018, Werner Logistics achieved 39.7% revenue growth year over year in our truck brokerage solution, our largest logistics service offering. Intermodal revenues also increased, while freight management and international had slightly lower revenues. The Werner Logistics operating income percentage in third quarter 2018 of 3.7% improved 243 basis points from third quarter 2017 of 1.3%. We continue to see strong customer acceptance of the value of the Werner Logistics portfolio of service offerings, particularly as the market remains strong and shippers tend to consolidate their logistics business with the stability of larger asset-backed logistics providers.

Our effective income tax rate in third quarter 2018 of 24.7% was slightly lower than our expected range of 25% to 26% due primarily to favorable tax adjustments for the remeasurement of uncertain tax positions. We expect our effective income tax rate to be in the range of 25% to 26% going forward.

Our financial position remains strong. As of September 30, 2018, we had $125 million of debt outstanding and over $1.2 billion of stockholders’ equity. During third quarter 2018, we repurchased 649,449 shares of our common stock for a total cost of $23.5 million.

  INCOME STATEMENT
  (Unaudited)
  (In thousands, except per share amounts)
                   
  Three Months Ended
September 30,
  Nine Months Ended
 September 30,
  2018   2017   2018   2017
  $   %   $   %   $   %   $   %
Operating revenues $ 629,735     100.0     $ 528,643     100.0     $ 1,811,549     100.0     $ 1,549,372     100.0  
Operating expenses:                              
Salaries, wages and benefits 201,606     32.0     170,238     32.2     580,515     32.0     500,620     32.3  
Fuel 67,072     10.6     50,266     9.5     191,769     10.6     140,551     9.1  
Supplies and maintenance 47,136     7.5     41,986     7.9     138,556     7.7     120,276     7.8  
Taxes and licenses 18,463     2.9     21,671     4.1     63,607     3.5     64,095     4.1  
Insurance and claims 22,011     3.5     20,669     3.9     73,858     4.1     60,336     3.9  
Depreciation 58,382     9.3     53,578     10.1     170,439     9.4     162,619     10.5  
Rent and purchased transportation 147,870     23.5     126,087     23.9     435,225     24.0     377,146     24.3  
Communications and utilities 3,993     0.6     4,199     0.8     12,028     0.7     12,158     0.8  
Other (184 )       4,075     0.8     (3,732 )   (0.2 )   12,812     0.8  
Total operating expenses 566,349     89.9     492,769     93.2     1,662,265     91.8     1,450,613     93.6  
Operating income 63,386     10.1     35,874     6.8     149,284     8.2     98,759     6.4  
Other expense (income):                                          
Interest expense 870     0.2     492     0.1     1,842     0.1     1,892     0.1  
Interest income (646 )   (0.1 )   (766 )   (0.1 )   (2,079 )   (0.1 )   (2,556 )   (0.1 )
Other 41         88         172         293      
Total other expense (income) 265     0.1     (186 )       (65 )       (371 )    
Income before income taxes 63,121     10.0     36,060     6.8     149,349     8.2     99,130     6.4  
Income tax expense 15,607     2.5     13,543     2.5     35,764     1.9     37,375     2.4  
Net income $ 47,514     7.5     $ 22,517     4.3     $ 113,585     6.3     $ 61,755     4.0  
                               
Diluted shares outstanding 71,752         72,601         72,300         72,517      
Diluted earnings per share $ 0.66         $ 0.31         $ 1.57         $ 0.85      

/EIN News/ --

  SEGMENT INFORMATION
  (Unaudited)
  (In thousands)
           
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2018   2017   2018   2017
Revenues              
Truckload Transportation Services $ 484,782     $ 407,566     $ 1,386,615     $ 1,196,071  
Werner Logistics 129,422     104,568     380,854     305,225  
Other (1) 15,107     16,020     42,788     47,257  
Corporate 632     593     2,170     1,539  
Subtotal 629,943     528,747     1,812,427     1,550,092  
Inter-segment eliminations (2) (208 )   (104 )   (878 )   (720 )
Total $ 629,735     $ 528,643     $ 1,811,549     $ 1,549,372  
               
Operating Income              
Truckload Transportation Services $ 58,894     $ 34,009     $ 135,748     $ 93,511  
Werner Logistics 4,776     1,318     13,135     6,652  
Other (1) 576     1,001     433     605  
Corporate (860 )   (454 )   (32 )   (2,009 )
Total $ 63,386     $ 35,874     $ 149,284     $ 98,759  

(1) Other includes our driver training schools, transportation-related activities such as third-party equipment maintenance and equipment leasing, and other business activities. On January 1, 2018, we adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers”, using the modified retrospective transition method, and comparative information has not been restated. Adoption of the new standard resulted in a $3.6 million and $10.7 million reduction of Other revenues for the three-month and nine-month periods ended September 30, 2018, respectively, that would have been reported as Other operating expense prior to the new standard with no impact to operating income.

(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,
   
  2018   2017   % Change   2018   2017   % Change
Truckload Transportation Services segment                      
Average percentage of empty miles 12.27 %   12.53 %   (2.1 )%   12.39 %   12.40 %   (0.1 )%
Average completed trip length in miles (loaded) 451     469     (3.8 )%   449     469     (4.3 )%
Average tractors in service 7,728     7,314     5.7 %   7,568     7,261     4.2 %
Average revenues per tractor per week (1) $ 4,074     $ 3,693     10.3 %   $ 3,959     $ 3,634     9.0 %
Total trailers (at quarter end) 23,345     22,435         23,345     22,435      
Total tractors (at quarter end)                      
Company 7,135     6,700         7,135     6,700      
Independent contractor 615     675         615     675      
Total tractors 7,750     7,375         7,750     7,375      
                       
Werner Logistics segment                      
Average tractors in service 43     48         42     53      
Total trailers (at quarter end) 1,415     1,655         1,415     1,655      
Total tractors (at quarter end) 43     47         43     47      

(1) Net of fuel surcharge revenues.

  SUPPLEMENTAL INFORMATION
  (Unaudited)
  (In thousands)
           
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2018   2017   2018   2017
Capital expenditures, net $ 114,455     $ 55,130     $ 289,290     $ 121,105  
Cash flow from operations (1) 120,062     44,738     302,513     223,231  
Return on assets (annualized) 9.5 %   5.2 %   8.0 %   4.7 %
Return on equity (annualized) 15.4 %   8.6 %   12.5 %   8.1 %

(1) On January 1, 2018, we adopted Accounting Standards Update 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”, by applying the retrospective transition method to each period presented. Adoption of the guidance resulted in a $0.3 million increase to third quarter 2017 cash flow from operations and a $6.3 million increase to cash flow from operations for the nine months ended September 30, 2017.

  CONDENSED BALANCE SHEET
  (In thousands, except share amounts)
       
  September 30,
2018
  December 31,
2017
  (Unaudited)    
       
ASSETS      
Current assets:      
Cash and cash equivalents $ 9,650     $ 13,626  
Accounts receivable, trade, less allowance of $8,750 and $8,250, respectively 324,911     304,174  
Other receivables 27,559     26,491  
Inventories and supplies 11,805     11,694  
Prepaid taxes, licenses and permits 7,327     15,972  
Other current assets 38,595     28,272  
Total current assets 419,847     400,229  
       
Property and equipment 2,249,911     2,114,337  
Less – accumulated depreciation 781,262     767,474  
Property and equipment, net 1,468,649     1,346,863  
       
Other non-current assets (1) 144,640     60,899  
Total assets $ 2,033,136     $ 1,807,991  
       
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Checks issued in excess of cash balances $ 3,299     $ 21,539  
Accounts payable 90,013     73,802  
Current portion of long-term debt 75,000      
Insurance and claims accruals 65,021     79,674  
Accrued payroll 37,787     32,520  
Other current liabilities 26,757     24,642  
Total current liabilities 297,877     232,177  
       
Long-term debt, net of current portion 50,000     75,000  
Other long-term liabilities 11,646     12,575  
Insurance and claims accruals, net of current portion (1) 208,560     108,270  
Deferred income taxes 221,552     195,187  
       
Stockholders’ equity:      
Common stock, $.01 par value, 200,000,000 shares authorized; 80,533,536      
shares issued; 71,194,303 and 72,409,222 shares outstanding, respectively 805     805  
Paid-in capital 106,904     102,563  
Retained earnings 1,365,523     1,267,871  
Accumulated other comprehensive loss (13,659 )   (15,835 )
Treasury stock, at cost; 9,339,233 and 8,124,314 shares, respectively (216,072 )   (170,622 )
Total stockholders’ equity 1,243,501     1,184,782  
Total liabilities and stockholders’ equity $ 2,033,136     $ 1,807,991  

(1) Under the terms of our insurance policies, we are the primary obligor of the damage award in the previously mentioned adverse jury verdict, and as such, we have recorded a $79.2 million receivable from our third party insurance providers in other non-current assets and a corresponding liability of the same amount in the long-term portion of insurance and claims accruals in the unaudited condensed balance sheet as of September 30, 2018.

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 and China. Werner is among the five largest truckload carriers in the United States, with a diversified portfolio of transportation services that includes dedicated; medium-to-long-haul, regional and expedited van; and temperature-controlled. The Werner Logistics portfolio includes truck brokerage, freight management, intermodal, international and final mile 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, 2017.

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

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