Saia, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013. Saia provides less-than-truckload, non-asset truckload, expedited and logistics services across the United States. Amounts below are in millions except per-share data and operating statistics.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Operating revenue | $292.6 | $287.5 | $566.4 | $556.2 |
| Operating income | $23.3 | $21.2 | $37.8 | $32.2 |
| Net income | $13.5 | $11.9 | $22.7 | $17.4 |
| Diluted EPS | $0.54 | $0.48 | $0.90 | $0.70 |
| Operating ratio | 92.0% | 92.6% | Not stated | Not stated |
| Cash from operations | Six-month cash flow: $32.0 in 2013 vs. $50.3 in 2012 |
Q2 revenue rose 1.7%; LTL tonnage per workday fell 1.6%, shipments declined 0.9%, and revenue per hundredweight increased 3.2% to $14.16. For the first half, revenue increased 1.8%. Management attributed growth mainly to higher yield, partly offset by lower tonnage. Q2 operating income improved 9.8%; the lower operating ratio indicates improved operating efficiency. Q2 interest expense was $1.6 versus $2.2, and the effective tax rate was 37.7%. First-half 2013 tax rate was 34.8%, including $1.0 of credits recognized for 2012.
Financial position, liquidity and debt
- At June 30, cash was $2.9; working capital was $19.8, compared with $9.8 at June 30, 2012.
- Total debt was $99.0, up from $60.7 at December 31, 2012; debt fair value was estimated at $100.6. Debt included $59.4 under the revolver and $39.6 in senior notes.
- The amended revolving credit facility was increased from $150 to $200, extended to June 2018, and has a further $40 accordion feature subject to lender approval. Borrowings were $59.4 and letters of credit were $59.1 at quarter-end; reported available line of credit was $81.5.
- The company reported compliance with debt covenants at June 30. The facility has leverage, fixed-charge-coverage and tangible-net-worth covenants; borrowing-base provisions can apply if leverage exceeds 3-to-1.
- First-half investing cash outflow was $70.8, primarily for property and equipment; financing provided $41.4. Net capital expenditures were projected at approximately $90 for 2013, with about $11 of the remaining budget committed at June 30.
Material changes and management outlook
- Profit and EPS increased year over year, while LTL tonnage and shipments declined. Higher yield and cost optimization helped performance; purchased transportation costs fell, partly reflecting network optimization and more in-house miles.
- Operating cash flow declined $18.3 year over year, which management attributed largely to working-capital fluctuations, particularly higher accounts receivable from seasonal revenue growth. Capital spending timing also differed from the prior year.
- On July 1, 2013, Saia implemented a 5.9% general rate increase for customers representing approximately 30% of operating revenue. Management said customer-specific negotiations apply to the other approximately 70%.
- A July 1, 2013 employee wage and salary increase is estimated to cost approximately $13 annually, expected to be partly offset by productivity and efficiency gains. Management plans to pursue yield, revenue density, cost control, safety and service initiatives; it gave no earnings guidance.
- Management cited uncertainty in economic recovery and exposure to competitive pricing, volume trends, driver and purchased-transportation availability, fuel, insurance costs, regulation, labor relations and execution of improvement initiatives. Fuel surcharges mitigate, but may not fully offset, fuel-price changes.
Contingencies and other notable items
Saia is subject to ordinary-course legal proceedings and said provisions were made for probable losses. Management stated outcomes are not expected to materially affect consolidated financial position but could materially affect results in a quarter or year. Saia also remains responsible for certain pre-2006 Jevic self-insured claims under indemnity and settlement arrangements. Unrecognized tax benefits were approximately $1.3, with $1.4 of accrued interest and penalties; settlement timing beyond one year could not be estimated. A three-for-two stock split was effected in June 2013; reported share and EPS figures were retroactively adjusted. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether yield gains and July’s rate increase can offset weaker shipment and tonnage trends amid competitive pricing.
- Whether working-capital needs and the planned 2013 capital program can be funded while maintaining liquidity and covenant compliance.
- How the $13 annual wage-cost estimate and other operating-cost pressures compare with realized productivity gains.
- The ultimate amount and timing of self-insurance, Jevic-related, legal and tax contingencies.
- The detailed terms and covenants of the amended credit and note agreements, including availability after letters of credit and any borrowing-base restrictions.