Marten Transport, Ltd. — Form 10-Q Summary
Business Context and Reporting Period
Unaudited quarterly report for the quarter and nine months ended September 30, 2011, filed November 9, 2011. Marten operates primarily in truckload transportation, with additional brokerage, intermodal and logistics operations. The company’s 45%-owned MW Logistics, LLC affiliate is consolidated under the variable-interest-entity model.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Operating revenue | $156.3 million, up 21.5% | $445.3 million, up 17.1% |
| Operating income | $11.1 million, up 11.3% | $30.1 million, up 14.7% |
| Net income | $6.3 million, up 15.5% | $16.6 million, up 14.4% |
| Diluted earnings per share | $0.29, versus $0.25 | $0.75, versus $0.66 |
| Operating ratio | 92.9%, versus 92.2% | 93.2%, versus 93.1% |
| Operating ratio excluding fuel surcharges | 91.3%, versus 90.9% | 91.7%, versus 91.9% |
| Net cash from operating activities | Not separately provided | $60.7 million, versus $45.9 million |
Approximate net profit margins were 4.0% for the quarter and 3.7% for the nine-month period. Truckload revenue totaled $336.1 million for the nine months, while Logistics revenue totaled $109.3 million. Logistics represented 24.5% of revenue excluding inter-segment eliminations and fuel surcharge presentation effects.
Fuel and fuel taxes increased 37.4% for the nine months. Net fuel expense increased 16.9% to $42.0 million, and fuel expense represented 14.0% of truckload and intermodal revenue net of fuel surcharges, compared with 13.2% in the prior period.
At September 30, 2011, cash and cash equivalents were $20.5 million, compared with $5.3 million at December 31, 2010. Total assets were $467.8 million and stockholders’ equity was $313.1 million. The company had no outstanding long-term debt or credit-facility borrowings. Its $50 million unsecured credit facility, extendable to $75 million subject to lender amendments, matured in May 2016; $8.8 million of standby letters of credit were outstanding and $41.2 million of borrowing availability remained.
Material Changes Versus the Prior Comparable Period
- Revenue growth reflected higher truckload revenue, a 6.4% increase in average truckload revenue per tractor per week, a 2.0% increase in average fleet size for the nine months, and continued Logistics volume growth.
- Fuel surcharge revenue increased 48.9% for the nine months because of higher diesel prices. Revenue excluding fuel surcharges increased 11.3%.
- Regional temperature-controlled operations increased to 64.8% of the truckload fleet from 48.2% a year earlier. Average length of haul declined 5.3% to 629 miles for the nine months.
- Logistics revenue increased 23.0% for the nine months, and Logistics operating income increased 34.3%, primarily due to growth in brokerage and intermodal services and improved MW Logistics profitability.
- Consolidated operating margin was approximately 6.8% for the nine months, compared with approximately 6.9% in 2010. Higher fuel, maintenance, labor, health insurance and equipment costs limited operating leverage.
- Operating cash flow increased by $14.8 million. Investing cash outflows declined to $24.1 million from $71.3 million, while financing activities used $21.5 million versus providing $24.4 million in the prior period, principally because the company repaid $19.3 million of long-term debt.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Management estimated approximately $20 million of capital expenditures net of equipment-sale proceeds for the remainder of 2011 and stated that liquidity should be adequate for at least the next twelve months.
- Management expected to continue quarterly cash dividends, subject to board approval and financial condition. Dividends of $0.02 per share were paid in each of the first three quarters of 2011.
- Purchase commitments included $10.2 million of new revenue equipment through 2012 and $583,000 of operating lease obligations through 2014.
- Fuel prices, equipment costs, insurance and claims, health insurance, labor costs, maintenance costs, customer demand, freight capacity and economic conditions remain significant risks. A 5% increase in average diesel prices based on nine-month consumption would have increased fuel expense by approximately $5.7 million.
- The company self-insures portions of auto liability, workers’ compensation, cargo, property damage and health claims. A 5% increase in estimated claims development factors would have increased outstanding loss reserves by approximately $3.5 million.
- Pending or threatened legal actions arise in the ordinary course of business. Management did not expect them to have a material adverse effect on long-term financial position or results of operations, although an individual period could be materially affected.
- Related-party transactions included payments to businesses owned or managed by company directors: $1.1 million to Bauer Built for fuel and tire services, plus $1.4 million paid to tire manufacturers for tires provided through Bauer Built, and $587,000 to Durand Builders Service for construction projects during the first nine months.
- Management stated that there were no material changes to previously disclosed risk factors. Disclosure controls were deemed effective as of September 30, 2011, and the company reported compliance with its credit-facility covenants.
Important Facts for Investors to Verify
- Whether fuel surcharge mechanisms continue to offset higher diesel costs, particularly fuel used for non-revenue miles and idling.
- The sustainability and profitability of the shift toward regional temperature-controlled operations, brokerage and intermodal services.
- Future operating ratios and whether higher labor, maintenance, equipment, insurance and health-care costs pressure margins.
- Actual capital expenditures, equipment replacement needs and gains or losses on used-equipment dispositions.
- Changes in self-insured claims reserves and the adequacy of the $8.8 million standby letters of credit.
- Customer concentration and collectibility of receivables; the allowance for doubtful accounts was $410,000 at September 30, 2011.
- Future dividend payments, credit-facility availability and compliance with leverage and fixed-charge coverage covenants.