Business context and reporting period
Schneider National, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The company provides truckload, intermodal, and logistics services across North America.
Financial performance
Second quarter: Operating revenue was $1,346.5 million, down 23% year over year; revenue excluding fuel surcharge was $1,190.9 million, down 20%. Net income was $77.5 million, down 40%, and diluted EPS was $0.43 versus $0.73. Operating income was $103.8 million versus $176.6 million; GAAP operating ratio rose to 92.3% from 89.9%, while adjusted operating ratio rose to 91.0% from 88.3%. Adjusted net income was $79.7 million versus $128.4 million.
First six months: Revenue was $2,775.2 million, down 18%; revenue excluding fuel surcharge was $2,440.4 million, down 17%. Net income was $175.5 million, down 21%, with diluted EPS of $0.98 versus $1.24. Operating income was $218.4 million versus $311.7 million; GAAP operating ratio was 92.1% versus 90.7%, and adjusted operating ratio was 90.9% versus 89.1%. Adjusted net income was $177.7 million versus $230.5 million.
Segments, second quarter: Truckload revenue was $532.7 million and operating income $64.8 million; Intermodal revenue was $261.0 million and operating income $23.7 million; Logistics revenue was $343.4 million and operating income $12.8 million. Revenue and operating income declined year over year in all three segments. Logistics was most pressured, with revenue down 34% and operating income down 73%; its operating ratio increased to 96.3% from 90.9%.
Cash flow and financial position: Six-month operating cash flow was $303.2 million, compared with $353.7 million. Investing cash outflow was $364.1 million, including $298.1 million of net capital expenditures, versus $110.0 million in the prior period. Financing cash outflow was $75.6 million. Cash and equivalents were $249.2 million at June 30, down from $385.7 million at year-end; cash plus marketable securities totaled $304.0 million. Total debt, including finance leases, was $216.1 million; senior notes were $205.0 million. No borrowings were outstanding under the revolving credit or receivables facilities, and combined available capacity was $322.4 million. The company reported compliance with financial covenants.
Material changes, outlook, and risks
- Management attributed weaker results principally to soft freight demand, lower brokerage volumes and pricing, fewer intermodal orders, and lower network truckload revenue per truck. Lower fuel surcharge revenue also reflected reduced fuel prices. Reduced purchased-transportation costs and other expense savings partly offset lower revenue.
- Six-month results were affected by comparison with 2022, which included a $50.9 million gain on the sale of the Canadian facility and a $57.0 million settlement expense related to litigation with former WSL owners. In 2023, a further $2.9 million of interest and penalties was recorded following an unfavorable state sales-tax audit ruling; the company plans another appeal.
- On August 1, 2023, after quarter-end, Schneider acquired dedicated carrier M&M Transport Services for approximately $225 million, excluding cash and working-capital adjustments. Purchase accounting was not complete at filing.
- The company stated that operating cash flow and available credit were expected to meet foreseeable requirements. No specific earnings or revenue guidance was provided in the filing text. Risks include freight-cycle and pricing pressure, fuel and equipment costs, driver availability, customer and capacity-provider dependence, claims and litigation, cybersecurity and systems disruptions, and potential impairment of goodwill.
- Firm commitments to purchase transportation equipment totaled $331.6 million. Management said ordinary-course legal matters were not expected to materially affect results. A new ERP system was implemented in May; management concluded disclosure controls were effective and reported no material change to internal control over financial reporting at the time.
Important facts for investors to verify
- Whether freight demand, brokerage pricing and volume, intermodal orders, and truckload productivity stabilize or continue to weaken.
- Execution and financing of the M&M acquisition, including its final purchase-price allocation and subsequent operating contribution.
- Capital spending and fleet commitments relative to operating cash flow, available liquidity, and expected equipment needs.
- Outcome of the sales-tax assessment appeal and any changes in claims accruals or other legal contingencies.
- Valuation of strategic equity investments and goodwill; six-month earnings included $17.7 million of gains on equity investments, and the annual goodwill impairment review was scheduled for October 2023.