Management from less-than-truckload carrier Saia (NASDAQ: SAIA) said they “look forward to delivering a strong second quarter” on a Wednesday call with analysts. Strong freight demand led the company to record first-quarter results and the trend has continued thus far through April.
The Johns Creek, Georgia-based carrier reported earnings of $1.40 per share, 2 cents better than the consensus estimate and 34 cents higher year-over-year. The tax rate was 140 basis points lower than the year-ago quarter, providing a 3-cent-per-share tailwind to results.
Second quarter likely to produce another record
April tonnage is up 30% year-over-year as freight demand remains elevated and the comparison to the 2020 period includes a sharp falloff in the economy as COVID-related shutdowns expanded.
The company expects the sequential improvement in its second-quarter operating ratio (the inverse of operating margin) to come in ahead of normal seasonality. The call is for OR to improve by 250 to 300 bps from a record first-quarter result of 89.9%. Normal seasonality usually accounts for 230 to 250 bps of improvement but severe winter storms in February provide a tailwind to the comp.
Further improvement in pricing and yields is driving the better margin profile. During the first quarter, revenue per hundredweight (excluding fuel surcharges) increased 5.7% year-over-year, even with increased weight per shipment (+2.6%) and length of haul (+6.6%).
Saia reported a 9% increase in rate renewals on freight under contract. Management said it’s a “favorable backdrop for pricing” as capacity throughout the LTL industry remains strained and “the entire space is pushing pricing.”
Similar to other carriers, Saia implemented a 5.9% general rate increase in January for freight carried under various general tariff codes. Management said the GRI, contractual rate increases as well as removing some accessorial fee waivers have helped drive overall yields higher.
Table: Saia’s key performance indicators
Cost inflation a headwind
First-quarter revenue of $484 million was 8.4% higher year-over-year as tonnage increased 5.3% per workday (up 11.5% in March) and yields moved higher. However, the pricing improvements will be partially offset by cost inflation.
Management noted the difficulty recruiting drivers and the need to continue to raise comp throughout its workforce. However, even with the 3.5% wage increase it implemented in January, the wage expense line declined 300 bps year-over-year as a percentage of revenue.
This was partially offset by a 260-bp year-over-year increase in purchased transportation expense, as the use of outside rail and truck capacity increased by more than 500 bps. Fuel and operating expenses also moved 100 bps higher and gains from property sales were $1.2 million lower.
The company’s second-quarter outlook suggests it will post another record performance, with OR likely near 87% compared to 91.5% during the second quarter of 2020 and the all-time record of 88.5% set in the third quarter. The result would also outpace management’s longer-term guidance, which was increased to 150 to 200 bps of OR improvement annually, assuming a normal environment.
Management acknowledged the company achieved a record OR in March but didn’t disclose the percentage.
Full-year net capital expenditure expectations were reiterated at $275 million, up from $219 million in 2020. The company opened one new terminal in the first quarter and plans to open three to six more during the year. Saia’s total door count grew by 4% in 2020, a level that is expected to be exceeded in 2021. The company will also take delivery of more tractors in the year.
Net debt-to-capital declined to 1.3% compared to 18.3% a year ago. Total debt has declined to $66 million from $236 million over the last year.
Shares of SAIA were down more than 3% in midday trading Wednesday compared to the S&P 500, which was up slightly.
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