Werner Enterprises, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Werner provides truckload transportation through Truckload Transportation Services (TTS) and non-asset-based logistics through Werner Logistics.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Operating revenue | $769.1 million | $832.7 million | Down 7.6% |
| Operating income | $15.6 million | $53.4 million | Down 70.8%; operating margin 2.0% vs. 6.4% |
| Operating ratio | 98.0% | 93.6% | Higher ratio indicates weaker operating profitability |
| Net income attributable to Werner | $6.3 million | $35.2 million | Down 82.1% |
| Diluted EPS | $0.10 | $0.55 | Down |
| Operating cash flow | $88.6 million | $166.8 million | Down 46.9% |
Revenue declined in both segments: TTS revenue fell 6.3% to $551.1 million, while Werner Logistics revenue fell 11.5% to $202.5 million. TTS operating income was $20.8 million versus $51.0 million, with segment margin of 3.8% versus 8.7%. Werner Logistics recorded an operating loss of $2.3 million versus operating income of $4.9 million; its margin was (1.2)% versus 2.2%.
Consolidated operating expenses were $753.5 million, down 3.3%, but rose to 98.0% of revenue from 93.6%. Fuel expense decreased 15.1%, reflecting lower average diesel prices and fewer company tractor miles. Other operating expense was $4.3 million versus a $9.8 million credit in Q1 2023, primarily reflecting much lower equipment-sale gains ($3.6 million versus $18.3 million). The effective income tax rate increased to 32.9% from 24.3%, partly due to unfavorable discrete tax items.
Financial position, cash flow and capital allocation
- At March 31, cash and cash equivalents were $60.3 million; total current assets were $597.3 million and current liabilities were $314.1 million.
- Total debt was $597.5 million, down from $648.8 million at December 31, 2023. The company had $559.1 million of available borrowing capacity under its $1.075 billion credit facility, after letters of credit. It reported compliance with debt covenants.
- Cash used in investing activities was $19.4 million. Net property and equipment additions were $19.0 million; capital expenditures were substantially below Q1 2023, when net additions were $102.7 million.
- Cash used in financing activities was $70.8 million, including $51.3 million of net debt repayments, $8.9 million of dividends and $6.5 million of share repurchases. The quarterly dividend was $0.14 per share.
Material changes, outlook and risks
- Management described a challenging freight market, ongoing pricing pressure and adverse weather in Q1. It expects difficult conditions to continue through Q2 and into the second half of 2024.
- Average TTS tractors in service fell 7.3% year over year to 7,935. Management expects year-end 2024 TTS fleet size to be 3%–6% below year-end 2023.
- Management expects One-Way Truckload average revenue per total mile, excluding fuel surcharge, to decline 3%–6% in the first half of 2024 year over year. It expects Dedicated average revenue per tractor per week to be flat to up 3% for full-year 2024.
- Werner Logistics faced lower revenue and margin pressure; management expects Truckload Logistics margins to remain challenged near term, with possible improvement later in the year from cost savings and integration synergies.
- Management estimates 2024 net capital expenditures of $250 million–$300 million, versus $408.7 million in 2023; approximately $188.3 million of property and equipment purchases were committed at quarter-end. It expects 2024 equipment-sale gains of $10 million–$20 million, considerably below 2023.
- Management expects full-year 2024 net interest expense to increase versus 2023, primarily due to refinancing/repricing as the BMO term loan matures in May and lower-priced swaps expire. It planned to repay the remaining $87.5 million BMO balance using credit-facility proceeds. An additional $30 million was borrowed under the revolving facility in April; an April interest-rate swap added $75 million of notional coverage through April 2027.
- Risks include freight demand and pricing, fuel-price changes and incomplete surcharge recovery, driver and independent-contractor availability and costs, insurance and claims, used-equipment values, and regulation. The company reported no fuel-price hedging instruments. A hypothetical 1 percentage-point increase in SOFR, at the disclosed borrowing level, would increase annual interest expense by approximately $4.4 million.
- Werner continues to appeal a Texas accident verdict. It reported a $40.4 million liability related to the verdict and a $79.2 million insurance receivable with a corresponding long-term liability; its stated maximum liability under the applicable insurance policies is $10 million plus interest. The company has petitioned the Texas Supreme Court for review. Other claims and class actions are also disclosed; management said their resolution is uncertain and did not expect the matters, considering reserves, to materially adversely affect the financial statements.
Important facts for investors to verify
- Whether freight rates, volumes and weather conditions improve as management anticipates, and whether segment margins recover.
- Progress toward fleet-size, capital-expenditure and equipment-sale gain expectations, particularly given the weaker used-equipment market.
- Debt refinancing, interest expense and swap coverage after the May 2024 term-loan and swap maturities.
- Developments in the Texas Supreme Court appeal, related insurance recoverability and other litigation and claims reserves.
- Whether Werner Logistics cost initiatives and acquisition-integration synergies deliver the expected margin improvement.