Schneider National, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Schneider provides truckload, intermodal, and logistics services. Amounts are in millions of dollars except per-share data and ratios.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Operating revenue | $1,135.7 | $1,183.9 | $3,287.6 | $3,590.7 |
| Revenue excluding fuel surcharge | $1,062.7 | $1,069.7 | $3,042.9 | $3,240.5 |
| Income from operations | $63.3 | $29.0 | $181.6 | $129.7 |
| Net income | $44.5 | $19.7 | $134.8 | $91.1 |
| Diluted EPS | $0.25 | $0.11 | $0.76 | $0.51 |
| Adjusted income from operations | $76.9 | $79.4 | $194.2 | $214.7 |
| Adjusted net income | $54.6 | $57.2 | $144.2 | $154.4 |
| GAAP operating ratio | 94.4% | 97.6% | 94.5% | 96.4% |
| Adjusted operating ratio | 92.8% | 92.6% | 93.6% | 93.4% |
Q3 revenue fell 4% year over year, while revenue excluding fuel surcharge declined about 1%. GAAP operating income and net income rose substantially, largely reflecting lower prior-year FTFM shutdown restructuring and asset impairment costs. On an adjusted basis, operating income declined about 3% and adjusted net income about 5% in Q3; for the first nine months, they declined about 10% and 7%, respectively.
Operating cash flow was $469.1 for the first nine months, versus $470.3 in 2019. Net capital expenditures were $114.9, down from $312.6. Cash and cash equivalents were $768.5 at quarter-end; cash, cash equivalents, and marketable securities totaled $814.1.
Total debt, including finance leases, was $307.0, compared with $361.7 at December 31, 2019. There were no borrowings under the $250 million revolving credit facility or $200 million receivables facility. Reported unused credit capacity was $375.8; the company said it was in compliance with financial covenants. Current debt and finance lease obligations were $0.4.
Business changes and segment results
- Truckload: Q3 segment revenue was $460.2 versus $515.6; operating income was $45.6 versus a $12.5 loss. Revenue excluding fuel surcharge declined about 11%, with lower volume and pricing, driver-capacity constraints, and the prior-year FTFM business contributing. Nine-month segment revenue declined about 13%; operating income increased to $122.7 from $18.6, substantially reflecting prior-year restructuring and impairment comparisons.
- Intermodal: Q3 revenue was $248.4 versus $249.2 and operating income was $23.0 versus $25.1. For nine months, revenue declined about 6% and operating income about 33%, amid fewer orders, shorter haul lengths, network disruptions, and higher equipment-related costs.
- Logistics: Q3 revenue rose about 20% to $284.4, but operating income slipped to $9.1 from $9.9 as purchased transportation costs compressed margins. Nine-month revenue rose about 7%, while operating income fell about 27% to $21.5.
Management reported freight demand began normalizing in Q3, with no significant negative operational or financial impacts from COVID-19 during the quarter. It expected continued improvement in Q4 but said the pandemic’s future effects could not be predicted with certainty. Cost reductions helped mitigate weaker revenue but were not expected to fully offset revenue declines and COVID-related costs.
Outlook, risks, and unusual items
- COVID-19 and operating risks: Demand, customer operations, supply chains, driver availability, and freight volumes remained uncertain. Driver shortages and capacity constraints affected Truckload volumes; management also cited risks from pricing, competition, fuel, seasonality, weather, and cybersecurity. Remote work was identified as increasing cyber risk.
- IRS excise-tax ruling: The company recorded a $13.1 charge in Q3, including interest, related to an adverse ruling on excise taxes for tractors refurbished in 2011–2013. It was included in operating supplies and expenses and excluded from adjusted results.
- Former-owner litigation: Former WSL owners seek an additional $40.0 million under the acquisition agreement. Trial was scheduled for January 2021. The company stated it believed it had strong defenses, while noting an adverse judgment could materially affect results.
- Equipment commitments: Firm commitments to purchase transportation equipment totaled $139.1 at September 30.
- Dividends: In October, the board declared a $2.00-per-share special dividend and a $0.065 quarterly dividend, payable in November 2020 and January 2021, respectively.
- Strategic investments: The company recorded an $8.8 nine-month gain on its Platform Science investment. It invested $5.0 in Mastery Logistics Systems in Q3 and another $5.0 after quarter-end, bringing its stated total investment to $10.0.
- Goodwill: The annual impairment evaluation was scheduled for October 31, 2020, with results expected in Q4. The filing reported no material change in contractual obligations during the nine months.
No numerical earnings or revenue guidance was provided in the filing. Management expected Q4 improvement relative to the pandemic-affected period but emphasized significant uncertainty.
Important facts for investors to verify
- Whether the Q3 improvement in GAAP earnings persists when prior-year FTFM restructuring and impairment comparisons are excluded; adjusted results declined year over year.
- Whether freight demand, driver capacity, pricing, and Truckload volumes recover, and whether Logistics growth can translate into improved operating income.
- The outcome and timing of the $40.0 million WSL-related lawsuit and any further developments in the IRS tax dispute.
- The effect of the $2.00 special dividend on liquidity and capital allocation, alongside the $139.1 in equipment purchase commitments.
- The outcome of the scheduled goodwill impairment review and continued COVID-19, claims, and cybersecurity exposures.