Marten Transport, Ltd. — Form 10-Q Summary
Business context and reporting period
Marten Transport is a temperature-controlled and dry freight transportation company operating through Truckload, Dedicated, Intermodal, Brokerage and Mexico-related activities. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The filing was dated August 6, 2021.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Year-over-year change | Six months ended June 30, 2021 | Year-over-year change |
|---|---|---|---|---|
| Operating revenue | $232.4 million | +9.4% | $455.5 million | +5.7% |
| Operating income | $28.5 million | +12.9% | $52.5 million | +21.3% |
| Operating margin | 12.3% | Improved from 11.9% | 11.5% | Improved from 10.0% |
| Net income | $21.4 million | +18.1% | $39.4 million | +23.8% |
| Diluted EPS | $0.26 | From $0.22 | $0.47 | From $0.38 |
| Operating ratio | 87.7% | Improved from 88.1% | 88.5% | Improved from 90.0% |
Net income margins were approximately 9.2% for the quarter and 8.7% for the six-month period. Fuel surcharge revenue increased to $28.8 million in the quarter and $53.7 million for the six months, primarily reflecting higher fuel costs.
Six-month segment revenue was $190.9 million for Truckload, $158.4 million for Dedicated, $47.6 million for Intermodal and $58.7 million for Brokerage. Six-month segment operating income was $24.6 million, $19.6 million, $3.3 million and $5.0 million, respectively.
Operating cash flow was $83.4 million for the first six months of 2021, compared with $104.1 million in the prior-year period. Investing cash flow was $(61.4) million, including $98.9 million of revenue equipment additions and $39.0 million of disposition proceeds. Financing cash flow was $(7.4) million, including $6.6 million of dividends. Cash and cash equivalents increased $14.5 million to $80.7 million.
At June 30, 2021, total assets were $884.4 million, stockholders’ equity was $653.6 million and total liabilities were $230.7 million. The company had no outstanding debt under its $30.0 million unsecured revolving credit facility, which matures in August 2023. Standby letters of credit of $18.5 million reduced remaining borrowing availability to $11.5 million. The company was in compliance with all debt covenants.
Material changes versus the prior comparable period
- Six-month revenue increased 5.7%, while revenue excluding fuel surcharges increased 3.7%.
- Brokerage revenue increased 24.2%, Intermodal revenue increased 8.2% and Dedicated revenue increased 5.2%; Truckload revenue increased only 0.8%, with revenue excluding fuel surcharges down 1.3%.
- Truckload operating income increased 38.1%, Intermodal increased 46.5% and Brokerage increased 56.4%; Dedicated operating income decreased 2.2%.
- Improved profitability reflected higher customer rates, lower insurance and claims expense, favorable gains on revenue equipment dispositions and improved Intermodal and Brokerage performance.
- Fuel and fuel taxes increased 24.0% for the six months, and net fuel expense increased 21.9% to $13.4 million. Purchased transportation increased 12.0%, primarily due to higher Brokerage carrier costs and increased independent-contractor rates.
- The gain on disposition of revenue equipment increased to $7.3 million from $3.8 million for the six-month period, making used-equipment market conditions a meaningful contributor to results.
- The quarterly dividend increased to $0.04 per share from $0.027 per share. No shares were repurchased during the first six months of 2021; approximately $33.4 million remained available under the repurchase program.
Guidance, outlook, commentary and risks
- Management estimated approximately $74 million of capital expenditures, net of disposition proceeds, for the remainder of 2021, in addition to $52.1 million of committed revenue equipment purchases through year-end.
- Management stated that existing cash, operating cash flow, borrowing availability and other financing sources should meet anticipated needs for at least the next twelve months, with no significant liquidity constraints expected in the foreseeable future.
- Management expects to continue quarterly cash dividends, subject to financial condition, cash requirements, covenant restrictions and board approval.
- Key operating factors include freight demand, customer rates, truck and rail capacity, driver availability, fuel prices, weather, inflation, insurance claims and used-equipment values. The company noted that fuel surcharges do not fully offset fuel used for non-revenue miles or idling.
- A 5% increase in the average diesel fuel cost would have increased first-half 2021 fuel expense by approximately $3.0 million. The company had no fuel hedging instruments outstanding.
- The company self-insures portions of workers’ compensation, auto liability, general liability, cargo, property damage and health insurance claims. Significant fluctuations in claim frequency or severity could materially affect results.
- Legal actions arising in the ordinary course were assessed by management as unlikely to have a material adverse effect, based on information available at the filing date. No material changes to previously disclosed risk factors were reported.
- The company committed to $832,000 of operating lease obligations through 2025 and had $18.5 million of standby letters of credit supporting self-insurance claims. It reported no other material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether improving freight rates and Brokerage and Intermodal growth offset Truckload fleet reductions and weaker Dedicated productivity.
- The sustainability of gains on revenue equipment sales and the effect of used-truck and trailer market conditions on future earnings.
- Whether fuel surcharge programs continue to recover higher diesel costs, particularly for non-revenue miles and idling.
- Execution of the remaining 2021 equipment commitments and the resulting effect on depreciation, cash flow and fleet capacity.
- Changes in self-insured claims, insurance premiums and accrued liabilities.
- Future dividend and share-repurchase capacity under the revolving credit facility’s covenant restrictions.