Saia, Inc. — Q1 2014 Form 10-Q
Quarter ended March 31, 2014; comparisons are with Q1 2013 unless otherwise noted. Saia provides less-than-truckload, non-asset truckload, expedited and logistics services. Financial statements are unaudited interim statements.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Operating revenue | $299.7 million | $273.8 million; up 9.5% |
| Operating income | $15.2 million | $14.5 million; up 4.8% |
| Operating ratio | 94.9% | 94.7%; 0.2 percentage points higher |
| Net income | $8.6 million | $9.2 million; down 6.3% |
| Diluted EPS | $0.34 | $0.37 |
| Operating cash flow | $4.1 million | $7.0 million |
| Net cash used in investing | $8.2 million | $6.0 million |
- LTL tonnage rose 5.7%, shipments 4.4%, and revenue per hundredweight 2.3% to $14.51. Management attributed revenue growth to higher tonnage and yield management.
- Operating expenses increased 9.7% to $284.5 million. Salaries and benefits rose 9.8%; purchased transportation rose 31.1%; depreciation and amortization rose 19.0%. Claims and insurance expense increased $3.9 million, primarily due to more severe accident claims.
- Cash and equivalents were $0.8 million at March 31, 2014. Working capital was $30.5 million, compared with $12.4 million at March 31, 2013.
- Total debt was $79.7 million, including $51.1 million outstanding on the revolving credit facility. Debt was $76.9 million at December 31, 2013. The facility provides commitments of up to $200 million and expires in June 2018. The company reported covenant compliance at quarter-end.
Material changes and management commentary
- Despite higher revenue and operating income, net income and diluted EPS declined. Q1 2013 included $1.0 million of tax credits retroactive to 2012, contributing approximately $0.04 per diluted share; the effective tax rate was 38.5% in Q1 2014 versus 30.0% in Q1 2013.
- Management said extreme weather adversely affected Q1 2014 results. Higher wages, increased use of more costly purchased transportation, and accident-claim severity also pressured costs. Interest expense declined due to lower borrowings at a lower rate.
- Operating cash flow fell $2.9 million, primarily due to working-capital fluctuations. Capital spending was primarily for revenue equipment.
Outlook, risks and contingencies
- Management gave no specific full-year earnings or revenue guidance. It plans to pursue yield, cost, productivity, service and safety initiatives, while adjusting resources to changes in volume. The company noted uncertainty about the strength and timing of economic recovery and competitive pricing pressure.
- A 4.5% general rate increase took effect April 1, 2014, for customers representing approximately 25% of operating revenue. Projected 2014 net capital expenditures were approximately $110 million; $80.7 million was committed at March 31.
- The filing anticipated a mid-year wage increase with an estimated annual cost of approximately $14 million, expected to be partially offset by productivity and efficiency gains. The July 2013 wage increase was estimated to have an approximately $13 million annual impact.
- Key risks include economic cycles, pricing and customer retention, driver and purchased-transportation availability and costs, fuel, self-insured claims, regulation, weather, labor relations, and debt covenant or borrowing-base constraints. The filing said risk factors were unchanged from the 2013 Form 10-K.
- Ordinary-course legal proceedings were provided for where losses were considered probable; management said outcomes were not expected to materially affect financial position, though quarterly or annual results could be materially affected. Unrecognized tax benefits were approximately $1.3 million, with $1.6 million of accrued interest and penalties; settlement timing beyond one year could not be reasonably estimated.
- Fuel surcharges are intended to reduce fuel-price exposure but may not fully offset rapid price movements and are subject to competitive negotiations. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the filing’s outstanding letter-of-credit amounts: $45.1 million in the debt discussion versus $46.7 million in the MD&A and commitments table; the stated $103.8 million available-line figure aligns with the $45.1 million amount.
- Monitor whether yield gains and the April rate increase are retained amid customer negotiations and competition, and whether volume growth translates into improved operating ratio.
- Track claims severity, purchased-transportation costs, wage increases and productivity offsets, which materially affected expense trends and could remain volatile.
- Assess cash generation against the approximately $110 million 2014 net capital expenditure plan, working-capital needs, debt maturities and covenant/borrowing-base conditions.