Schneider National, Inc. — 2018 Form 10-K
Business and reporting period. Schneider provides North American truckload, intermodal, and logistics services, with additional leasing, insurance, and limited Asia operations. This filing covers the fiscal year ended December 31, 2018; it also reports fourth-quarter results. Unless noted otherwise, financial figures are in millions of dollars.
Financial results and liquidity
| Metric | 2018 | 2017 | Change / context |
|---|---|---|---|
| Operating revenue | $4,977.0 | $4,383.6 | Up 14%; revenue excluding fuel surcharges rose 11% to $4,454.2 |
| Income from operations | $375.8 | $280.3 | Up 34% |
| Operating ratio | 92.4% | 93.6% | Improved; lower is better |
| Adjusted operating ratio | 91.4% | 93.0% | Non-GAAP measure; improved |
| Net income | $268.9 | $389.9 | Down 31%, principally because 2017 included a $229.5 tax benefit from the Tax Cuts and Jobs Act |
| Adjusted net income | $275.2 | $161.2 | Up 71%; non-GAAP measure |
| Diluted EPS | $1.52 | $2.28 | 2017 included the tax benefit; adjusted EPS is not stated here |
| Cash from operating activities | $566.5 | $461.3 | Up 23% |
| Net capital expenditures | $331.5 | $351.9 | Down about 6% |
Fourth quarter. Revenue was $1,321.6, up about 11% from $1,191.2. Operating income was $118.6, up about 27%, and net income was $84.8 versus $283.9 in fourth-quarter 2017, when the tax-law benefit was recorded. Diluted EPS was $0.48 versus $1.60. The reported quarterly figures do not separately state fourth-quarter adjusted results.
Segments. Truckload revenue was $2,268.0 and operating income $240.5; Intermodal revenue was $953.5 and operating income $130.2; Logistics revenue was $1,024.6 and operating income $47.4. Intermodal operating income rose to $130.2 from $52.3, supported by pricing, volume, network optimization, and lower chassis costs following the shift to owned chassis. Logistics revenue grew 23%, primarily from brokerage growth, while higher third-party transportation costs partly offset the benefit. Truckload revenue excluding fuel surcharge grew 4%, principally on pricing. The Other segment recorded an operating loss of $42.3.
Liquidity and debt. Year-end cash and cash equivalents were $378.7 and marketable securities were $51.3, totaling $430.0. Debt principal was $405.0, plus $6.9 of capital-lease obligations; the company reported total debt and capital-lease obligations of $411.9. It had no borrowings under its $250 million revolving facility or $200 million receivables facility and reported compliance with debt covenants. Current assets were $1,324.3 and current liabilities $522.6. The company generated $566.5 of operating cash flow and paid $40.7 in dividends.
Material changes and notable items
- Revenue excluding fuel surcharge increased 11%, driven by strong pricing and demand, including higher Logistics and Intermodal volumes. Fuel-surcharge revenue increased $136.5.
- Purchased transportation expense increased $360.6, or 22%, reflecting brokerage growth and higher third-party carrier prices. Driver-related costs, fuel, and insurance and claims expenses also increased.
- The company recorded a $5.8 Washington State labor-law settlement and a $2.0 goodwill impairment for its Asia reporting unit. These items were excluded from certain non-GAAP adjusted measures.
- Operating cash increased by $140.2 during 2018. Net capital expenditures were $331.5, including equipment purchases partly offset by equipment-sale proceeds.
- Adoption of ASC 606 changed transportation revenue recognition to recognition over the transit period rather than at delivery; retained earnings increased $7.3 on adoption. The reported 2018 impact on operating revenue was small.
Outlook, management commentary, and risks
- Management anticipated approximately $340 million of net capital expenditures in 2019 and stated that operating cash flow and available facilities should meet foreseeable funding needs. It expected an ongoing effective tax rate of 25.5%–26.5%, subject to changes in law.
- Management’s strategy emphasizes organic growth, specialty freight, intermodal and brokerage expansion, e-commerce and final-mile services, technology investment, and disciplined capital allocation. No specific consolidated revenue or earnings guidance is provided in the supplied filing text.
- Management said it was revising First to Final Mile operations to reduce variability, shift some freight to intermodal, truckload, and third-party capacity, and refine commercial focus. Performance below expectations could lead to additional goodwill impairment.
- CEO Christopher Lofgren announced plans to retire after the April 2019 annual meeting; the Board selected COO Mark Rourke as successor. The CFO role also changed in April 2018.
- Key risks include cyclical freight demand and rate pressure; driver and owner-operator availability and compensation; fuel-price and surcharge-recovery timing; reliance on railroads and third-party brokerage capacity; insurance claims and self-insured exposures; regulatory and environmental costs; cybersecurity and technology disruption; and foreign-market uncertainty. The company also disclosed pending litigation with former WSL owners over alleged acquisition-agreement obligations; the company considers the claim meritless.
- ASC 842 lease accounting took effect January 1, 2019 and was expected to add approximately $80 million of operating-lease right-of-use assets and related liabilities to the balance sheet, without a material income-statement impact.
Important facts for investors to verify
- Whether strong pricing and demand persist, particularly in Intermodal and Logistics, and whether higher purchased-transportation costs pressure margins.
- Progress and financial performance of First to Final Mile, including the potential for further impairment.
- Cash conversion, planned 2019 capital spending, debt maturities, and the continued availability of revolving and receivables facilities.
- Developments in the WSL dispute, Washington labor-law settlement, and self-insured claims reserves, which totaled $156.0 net of reinsurance at year-end.
- Execution of the CEO transition and the effects of the dual-class share structure: the Schneider family held about 94% of total voting power, limiting other shareholders’ influence.