Schneider National, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise noted. Schneider provides truckload, intermodal, and logistics services. Results are unaudited.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating revenue | $1,119.1 million | $1,194.1 million |
| Revenue excluding fuel surcharge | $1,016.1 million | $1,082.3 million |
| Income from operations | $54.9 million | $51.5 million |
| Operating ratio | 95.1% | 95.7% |
| Net income | $43.8 million | $36.9 million |
| Diluted EPS | $0.25 | $0.21 |
| Cash from operating activities | $124.5 million | $133.2 million |
- Management-reported adjusted operating income was $53.7 million versus $51.5 million; adjusted operating ratio was 94.7% versus 95.2%; adjusted net income was $42.9 million versus $36.9 million. These are non-GAAP measures.
- Truckload revenue fell to $469.4 million from $531.8 million, while segment operating income rose to $36.6 million from $23.2 million. Intermodal revenue was $238.0 million versus $237.6 million, with operating income down to $16.3 million from $19.9 million. Logistics revenue declined to $239.6 million from $243.9 million, and operating income fell to $4.2 million from $10.3 million.
- At March 31, cash and cash equivalents were $600.6 million; marketable securities were $49.2 million. Total debt, including finance leases, was $336.9 million, including $30.0 million due within a year. Current assets were $1,459.3 million and current liabilities $474.6 million.
- Cash used in investing was $39.7 million; net capital expenditures were $15.4 million. Cash used in financing was $35.8 million, including a $25.0 million debt repayment and $10.7 million of dividends paid.
Material changes and notable items
- Revenue declined about 6%, primarily reflecting the 2019 shutdown of the First to Final Mile service offering (FTFM), lower truckload pricing, and lower fuel surcharge revenue. FTFM generated $31.6 million of Q1 2019 revenue and had a $12.1 million operating loss in that quarter.
- Net income increased about 19%, helped by the absence of FTFM losses and a $6.1 million pretax gain from remeasurement of Schneider’s Platform Science investment. Higher equipment disposition losses and impairment charges—$4.8 million in Q1 2020 versus $2.8 million of equipment gains in Q1 2019—partly offset these benefits.
- Truckload operating performance improved with FTFM’s exit and cost savings, while Intermodal faced higher rail costs and Logistics experienced compressed brokerage net revenue.
- Cash and marketable securities totaled $649.8 million. The company reported $375.8 million of available credit capacity, no borrowings under its revolving or receivables facilities, and compliance with financial covenants.
Outlook, risks, and contingencies
- COVID-19 had no significant operational or financial impact in Q1, but Schneider reported lower demand in April, particularly in Truckload and Intermodal, with volumes stabilizing late in the month. Management expected the largest pandemic effects in Q2 and anticipated steady improvement in Q3 and Q4; it cautioned that the duration and overall impact were uncertain.
- Cost actions included reduced discretionary spending and tighter hiring and headcount controls. Management said these actions were not expected to fully offset revenue declines. Almost all discretionary and growth capital expenditures for the remainder of 2020 were canceled, while replacement-equipment investment and technology spending were maintained or accelerated.
- Management stated that existing cash and credit capacity were expected to meet foreseeable requirements, but noted that more severe or prolonged revenue declines could require additional financing. A $30.0 million debt maturity was due in September 2020.
- Firm commitments to purchase transportation equipment totaled $251.7 million. The company’s annual goodwill impairment review was planned for October 2020; management noted that operating results and COVID-related developments could affect valuation assumptions.
- A lawsuit by former WSL owners seeks an additional $40.0 million payment; trial was scheduled for September 2020. Schneider said it had strong defenses but noted an adverse judgment could materially affect results.
- Other identified risks include freight-demand volatility, driver availability and wage costs, used-equipment market conditions, customer and supplier disruption, and increased cybersecurity exposure from remote work. Management said ordinary-course legal matters and claims were not expected to have a material impact.
- No numerical full-year earnings guidance was provided in the filing.
Important facts for investors to verify
- Whether freight volumes and pricing recover as management anticipated, particularly in Truckload and Intermodal.
- How the pandemic affects liquidity, customer credit and collections, and the timing of the September 2020 debt maturity.
- Whether used-equipment values, asset impairments, and goodwill assumptions lead to further charges.
- The outcome and potential exposure from the WSL lawsuit and the company’s equipment purchase commitments.