Saia, Inc. — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. Saia provides regional and interregional less-than-truckload (LTL) transportation and related services. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Operating revenue | $265.9 | $231.3 | $508.9 | $443.6 |
| Operating income | $8.3 | $5.9 | $12.3 | $3.7 |
| Operating ratio | 96.9% | 97.5% | Not stated | Not stated |
| Net income (loss) | $3.4 | $2.0 | $4.1 | ($1.2) |
| Diluted EPS | $0.21 | $0.12 | $0.25 | ($0.08) |
| Operating cash flow | Not stated by quarter | $10.7 | $5.0 |
- Q2 revenue increased 14.9%; LTL tonnage rose 4.5%, LTL shipments 3.0%, and LTL revenue per hundredweight 9.6% to $12.80. Management attributed growth to higher volume, pricing actions, and fuel surcharges.
- Operating income rose 40.6% year over year and the operating ratio improved by 0.6 percentage points. Q2 operating expenses grew more slowly than revenue overall, but fuel and other operating costs, wages and benefits, purchased transportation, and claims costs increased.
- For the first half, revenue increased 14.7% and Saia returned to profitability from a year-earlier loss. Net income included a 37.4% effective tax rate versus 29.3% in the prior-year period.
- Six-month investing cash outflow was $20.6, primarily for property and equipment, versus $0.2 in 2010. Financing cash outflow was $8.4, mainly debt repayment. Cash declined $18.3 to $10.7.
Balance sheet, debt, and liquidity
- At June 30, cash was $10.7, current assets $155.4, and current liabilities $115.7; working capital was $39.7. Total assets were $460.1 and stockholders’ equity $211.4.
- Debt carrying value was $81.4, down from $90.0 at December 31, 2010. The company had no revolving-credit borrowings and $49.7 of letters of credit outstanding under its $120 revolving facility, subject to a borrowing base. It reported compliance with debt covenants at quarter-end.
- Management said liquidity needs were expected to be met through cash and credit-facility availability, subject to the borrowing base and covenant compliance. The contractual-obligations table lists $70.3 of available line of credit, subject to covenants.
- Projected 2011 net capital expenditures were approximately $63.0, with $36.5 committed at June 30; the plan includes returning tractor replacement to a more normal level. Six-month property and equipment purchases were $20.9, partly offset by $0.3 in disposal proceeds.
Changes, outlook, and risks
- Management continued pricing, yield, sales, route-design, workforce-planning, productivity, and asset-utilization initiatives. It said the 2010 pricing actions continued to benefit Q2 yield and profitability.
- The company anticipated that interest rates on certain senior notes could return to original levels in Q3 2011, subject to compliance with original covenants; this was an expectation, not a guarantee.
- No specific earnings or revenue guidance was provided. Management cited uncertainty over the timing and strength of economic recovery, competitive pricing and excess industry capacity, and its reliance on successful company-specific improvement initiatives.
- Key exposures include fuel-price volatility (fuel surcharges may not fully offset rapid price changes), customer credit and collections, availability and cost of drivers and purchased transportation, labor and healthcare costs, self-insurance claims, regulation, and debt covenant compliance.
- California labor matters include a proposed $0.8 settlement of one class-action case, recorded as a liability but still subject to court approval; a separate putative class action has an undetermined potential loss. Management said other ordinary-course proceedings were not expected to materially affect financial position, though they could affect results in a period.
- Saia retained indemnification obligations related to the 2006 sale of Jevic, including workers’ compensation and other claims. The filing also reports $2.9 of unrecognized tax benefits and $1.2 of related accrued interest and penalties; settlement timing is not reasonably estimable beyond one year.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. The filing states there were no material changes to the risk factors previously disclosed in the 2010 Form 10-K.
Important facts for investors to verify
- Whether revenue growth and pricing/yield improvements persist as economic conditions and competitive capacity change.
- Whether rising fuel, labor, maintenance, and claims costs continue to pressure operating margins and whether fuel surcharges adequately recover fuel costs.
- Execution and funding of the approximately $63 million 2011 capital plan, alongside cash generation and working-capital needs.
- Credit-facility borrowing-base availability, covenant headroom, debt maturities, and the expected interest-rate reset on senior notes.
- Developments in the California labor litigation, Jevic-related indemnification exposure, and tax matters.