Business context and reporting period
Schneider National, Inc. (NYSE: SNDR) filed this Form 10-K for the fiscal year ended December 31, 2019. The company provides truckload, intermodal, and logistics services, alongside equipment leasing and insurance operations. This is an annual filing; selected fourth-quarter 2019 results are also reported.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Operating revenue | $4,747.0 million | $4,977.0 million |
| Revenue excluding fuel surcharge (non-GAAP) | $4,281.0 million | $4,454.2 million |
| Operating income | $207.8 million | $375.8 million |
| Net income | $147.0 million | $268.9 million |
| Diluted EPS | $0.83 | $1.52 |
| Operating ratio | 95.6% | 92.4% |
| Adjusted operating ratio (non-GAAP) | 92.8% | 91.4% |
| Cash from operations | $636.3 million | $566.5 million |
| Cash, equivalents, and marketable securities at year-end | $599.9 million | $430.0 million |
| Debt and finance lease obligations | $361.7 million | $411.9 million |
For fourth-quarter 2019, revenue was $1,156.3 million, operating income $78.1 million, net income $55.9 million, and diluted EPS $0.32, compared with $1,321.6 million, $118.6 million, $84.8 million, and $0.48, respectively, in fourth-quarter 2018. Full-year operating and net margins were approximately 4.4% and 3.1%, versus 7.5% and 5.4% in 2018.
Net capital expenditures were $306.9 million in 2019, versus $331.5 million in 2018. The company generated $172.9 million of net cash in 2019. It had no outstanding borrowings under its $250 million revolving facility or $200 million receivables facility at year-end and reported compliance with debt covenants. The current ratio was approximately 3.0.
Material changes versus the prior comparable period
- Revenue declined about 5%; revenue excluding fuel surcharge declined about 4%. Management cited weaker freight demand and excess market capacity.
- Operating income fell about 45% and net income about 45%. Results included $63.7 million of FTFM shutdown restructuring charges and a $34.6 million FTFM goodwill impairment. Adjusted net income, a non-GAAP measure, fell about 20% to $220.2 million.
- Truckload revenue excluding fuel surcharge declined 8%; average trucks fell from 11,568 to 11,091 and revenue per truck per week from $3,840 to $3,668. Truckload operating ratio worsened to 97.2% from 89.5%.
- Intermodal revenue increased 5% to $1,007.8 million, primarily on higher revenue per order, but operating income declined 17% to $107.7 million. Logistics revenue declined 9% to $934.8 million, while brokerage volumes grew 12%; lower rates and a customer’s insourcing of warehouse management weighed on results.
- Cash and marketable securities increased, while reported debt and finance lease obligations decreased. The 2019 adoption of lease accounting changed classification of lease-related assets, liabilities, and cash flows; prior-year figures were not restated.
Outlook, management commentary, risks, and unusual items
The filing provides no full-year 2020 revenue or earnings guidance. Management anticipated approximately $310 million of net capital expenditures in 2020 and an ongoing effective tax rate of 25.5%–26.5%, subject to changes in law. Management described its priorities as organic growth, expanding specialty and asset-light services, improving margins through its Quest technology platform, disciplined capital allocation, and retaining qualified drivers.
- FTFM exit: The board approved a structured shutdown in July 2019, substantially completed by August 31. FTFM incurred pre-tax operating losses of $34.4 million in 2019, in addition to the stated restructuring and goodwill impairment charges.
- Contingency: Former WSL owners sought an additional $40 million in Delaware litigation over alleged post-acquisition obligations. A September 2020 trial was scheduled; the company stated it believed it had strong defenses. An adverse judgment could materially affect results.
- Operating risks: Freight demand, pricing and capacity, driver recruitment and wage costs, fuel surcharge recovery, insurance severity and coverage, and dependence on railroads and third-party carriers can affect margins and service.
- Regulatory and legal risks: Driver classification remains uncertain; California AB 5 was subject to a preliminary injunction for motor carriers while litigation continued. The company also cites environmental, safety, and other ordinary-course claims. It reported $143.5 million of claims accruals net of reinsurance.
- Governance: The Schneider family voting trust controlled approximately 94% of voting power, limiting the influence of Class B shareholders on specified matters.
- Audit and controls: Deloitte issued an unqualified opinion on the financial statements and an unqualified opinion on internal control over financial reporting. Claims accruals were identified as a critical audit matter.
Important facts for investors to verify
- Reconcile GAAP performance with management’s non-GAAP adjusted income and operating ratio, including which FTFM-related costs were excluded.
- Track the $40 million WSL lawsuit, its eventual outcome, and any effect on cash, earnings, or reserves.
- Assess whether freight volumes, pricing, and Truckload utilization recover, and whether Intermodal and Logistics growth translates into stronger operating profitability.
- Compare actual 2020 capital spending with the approximately $310 million estimate and evaluate returns on fleet and technology investment.
- Monitor driver availability and compensation, insurance claims and coverage, and any changes in owner-operator classification rules.
- Review future filings for debt maturities, lease obligations, liquidity needs, and any change to the stated dividend policy.