Schneider National, Inc. — Q1 2017 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2017, compared with Q1 2016. Schneider provides truckload, intermodal, and logistics services. The June 2016 acquisition of Watkins and Shepard Trucking and Lodeso contributed materially to year-over-year results. The IPO closed in April 2017, after the quarter.
Financial performance
Amounts below are in millions of dollars except per-share data and ratios.
- Revenue: Operating revenue was $1,006.4, up 8.4%. Revenue excluding fuel surcharges, a non-GAAP measure, increased 5.1% to $916.2.
- Profit and margins: Operating income fell 16.3% to $43.6; net income fell 19.8% to $22.6. Diluted EPS was $0.14 versus $0.18. Operating ratio worsened to 95.7% from 94.4%; adjusted operating ratio was 95.1% versus 94.0%. Adjusted net income was $23.3, down 17.0%.
- Cash flow: Operating cash flow was $89.2, down from $114.2. Investing cash use was $38.0 versus $90.7, mainly reflecting lower transportation-equipment purchases. Financing cash use was $102.7 versus $30.9, primarily from higher repayments under the receivables facility. Cash declined $51.5 to $79.3.
- Liquidity and debt: Cash plus marketable securities totaled $128.7 at quarter-end. Total debt, including capital leases, was $604.5, compared with $699.4 at December 31, 2016. The company reported compliance with debt covenants. It had $50.0 outstanding under its $200.0 receivables facility and no borrowings under its $250.0 revolving facility at quarter-end.
- Other: The company declared a $0.05 per-share dividend. Firm commitments to purchase transportation equipment were approximately $195.1.
Changes and segment results
- Revenue growth reflected $44.0 from WST and Lodeso, higher fuel surcharges, and Logistics brokerage growth. Operating income declined primarily because of lower freight volume amid unfavorable market conditions, alongside higher operating costs.
- Truckload: Revenue excluding fuel surcharges rose 6.4%, including acquisition contribution; segment operating income fell 8.7% to $38.5. Revenue per truck per week increased 3.1%.
- Intermodal: Revenue excluding fuel surcharges fell 2.0%; orders rose 6.2%, but revenue per order declined 7.7%, reflecting soft pricing and shorter hauls. Operating income fell 6.4% to $6.6.
- Logistics: Revenue excluding fuel surcharges rose 10.3%, with brokerage volume up 13.2%; operating income was essentially unchanged at $5.2. Market compression and lower brokerage net revenue per order offset growth.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance was provided. Management said operating cash flow, available credit facilities, and IPO proceeds were expected to meet foreseeable requirements. It expected Intermodal’s transition to more than 10,000 owned chassis to be completed by year-end 2017; existing rental commitments run through December 31, 2017.
- Q1 included $1.3 of duplicate chassis rental costs as owned equipment replaced leased units. Management’s non-GAAP adjusted measures exclude these costs; they are not substitutes for GAAP results.
- In April and May 2017, the company received approximately $340.3 of net IPO proceeds. It used $50.0 to repay the receivables facility and $100.0 to repay senior notes that matured May 7, 2017. These transactions occurred after quarter-end and are not reflected in the March 31 balance sheet.
- Key disclosed risks include freight demand and pricing, fuel costs and surcharge recovery, driver recruitment and wage pressure, customer concentration or loss, regulatory and cybersecurity exposure, insurance claims, acquisitions, and reliance on railroads and third-party capacity. The company said it was already compliant with the electronic logging device mandate; a legal challenge to the rule had been appealed.
- Acquisition-related contingent consideration had a fair value of $13.5 at March 31; earnout payments may total up to $40.0 subject to earnings targets. Management said ordinary-course legal matters were not expected to have a material impact.
Most important facts for investors to verify
- Whether freight volumes, pricing, and operating income recover after the weak Q1 comparison, particularly in Truckload and Intermodal.
- How much of revenue growth reflects durable organic demand versus acquisition contribution and fuel surcharges.
- Post-IPO cash, debt, and interest costs after the disclosed $150.0 in repayments, and the use of remaining proceeds.
- The cost and timing of the Intermodal chassis transition, including remaining lease obligations and further duplicate costs.
- Exposure to driver availability and wages, equipment purchase commitments, and WST/Lodeso earnout obligations.