Saia, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2016. The unaudited filing covers Saia and its subsidiaries, which provide less-than-truckload, non-asset truckload, expedited and logistics services across the United States.
Financial performance
Amounts below are in millions of dollars except per-share data and operating statistics.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Operating revenue | $316.4 | $317.2 | $918.3 | $933.7 |
| Operating income | $22.6 | $19.8 | $61.9 | $72.4 |
| Net income | $13.8 | $11.8 | $37.7 | $43.6 |
| Diluted EPS | $0.54 | $0.46 | $1.47 | $1.71 |
| Operating ratio | 92.8% | 93.7% | Not stated | Not stated |
| Cash provided by operations | Not stated | Not stated | $117.7 | $114.0 |
- Q3 revenue fell 0.2% year over year, while operating income rose 14.1% and net income rose 17.4%. The improved operating ratio indicates lower operating expenses as a share of revenue.
- For the first nine months, revenue declined 1.7%, operating income declined 14.4%, and net income declined 13.6% year over year.
- Q3 LTL tonnage fell 2.9% and shipments fell 1.2%; LTL revenue per hundredweight rose 3.7% to $16.08.
- Q3 results benefited from higher yield, lower fuel and purchased transportation costs, and network optimization. These gains were partly offset by lower volumes, wage increases and higher accident costs.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $117.7 million. Investing activities used $107.8 million and financing activities used $9.2 million. Cash increased by $0.7 million to $0.8 million at September 30, 2016.
- Working capital was $13.0 million. Current assets were $166.4 million and current liabilities were $153.4 million at quarter-end.
- Total debt was $94.2 million, including $14.5 million drawn on a $250 million revolving facility, $10.7 million of senior notes and $69.0 million of capital leases. Debt was $69.0 million at December 31, 2015, primarily reflecting increased capital lease obligations.
- Available revolving credit was reported as $195.8 million, subject to covenants. The filing reports $39.7 million of letters of credit under the credit agreement and $41.5 million of total letters of credit in its liquidity discussion; these figures have different stated scopes.
- The company reported compliance with debt covenants. Its revolving facility expires in March 2020; senior notes outstanding mature by January 2018. Capital lease obligations relate to revenue equipment.
- Capital expenditures, including equipment acquired through capital leases, were $142.5 million in the first nine months. Management projected 2016 net capital expenditures of approximately $145 million, inclusive of equipment acquired using capital leases.
Outlook, risks and other matters
- No specific earnings or revenue guidance was provided. Management said results remain exposed to economic conditions, industry capacity and pricing pressure, and continued its focus on yield, cost control, productivity, service and safety.
- Saia implemented a 4.9% general rate increase on October 3, 2016 for customers representing approximately 20%–25% of operating revenue. A similar increase took effect December 7, 2015. Management cautioned that retention depends on economic trends, competitors and other factors.
- A market-competitive wage increase took effect July 1, 2016. Management estimated its annual cost at approximately $16 million, with anticipated partial offsets from productivity and efficiency gains.
- Claims and insurance expense increased $8.6 million in the first nine months, driven primarily by more frequent and severe accidents, adverse development on older claims and higher insurance premiums, partly offset by lower cargo claims. Self-insurance retentions can make claims costs volatile.
- Fuel surcharges are intended to reduce fuel-price exposure but may not fully offset rapid fuel-price changes and remain subject to competitive negotiations. Lower fuel prices reduced surcharge revenue as a proportion of revenue.
- Ordinary-course litigation and claims are described; management believes provisions are adequate and does not expect a material adverse effect on financial condition, although results in a particular period could be affected. The filing also reports $1.8 million of the company’s pro rata share of letters of credit for certain older claims, and accruals of approximately $1.0 million for uncertain tax positions plus $0.6 million for related interest and penalties.
- Management cited risks including economic weakness, customer and pricing changes, driver and fuel availability, insurance and claims costs, regulation, weather, cyber security, litigation and debt covenant compliance. It reported no material changes to the risk factors in the 2015 Form 10-K.
- Management planned adoption of new accounting standards for share-based payments in 2017, revenue recognition in 2018 and leases in 2019; the effects were still under evaluation.
Important facts for investors to verify
- Whether volume trends and pricing actions sustain yield and improve operating performance amid economic and competitive pressures.
- Whether the expected partial productivity offsets cover the approximately $16 million annual wage-increase cost.
- Capital spending and lease-financed equipment additions, and their effects on debt, depreciation and cash generation.
- Claims and insurance trends, including accident frequency, severity and adverse development on prior claims.
- Liquidity availability, letters of credit and continued compliance with debt covenants; reconcile the filing’s distinct letters-of-credit figures.
- The eventual financial-reporting impact of the pending revenue, lease and share-based payment accounting standards.