Schneider National, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Schneider provides truckload, intermodal, and logistics services across North America.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $1,675.3 million | $1,444.5 million | $5,042.7 million | $4,033.9 million |
| Revenue excluding fuel surcharge | $1,441.8 million | $1,330.1 million | $4,394.2 million | $3,719.1 million |
| Income from operations | $145.4 million | $153.7 million | $457.1 million | $355.7 million |
| Net income | $125.8 million | $110.0 million | $347.7 million | $271.3 million |
| Diluted EPS | $0.70 | $0.62 | $1.95 | $1.53 |
| Operating ratio | 91.3% | 89.4% | 90.9% | 91.2% |
| Adjusted operating ratio | 89.9% | 88.4% | 89.3% | 90.4% |
Q3 revenue increased 16%, including higher fuel surcharge revenue; revenue excluding fuel surcharge rose about 8%. Net income increased about 14%, while operating income declined about 5%, reflecting higher rail, driver, maintenance, and other operating costs and lower equipment-sale gains. For the first nine months, net income rose about 28% and adjusted net income about 31%.
Cash, debt, and liquidity
- Nine-month operating cash flow was $578.3 million, versus $396.0 million in 2021. Investing cash outflow was $371.5 million and financing cash outflow was $101.9 million.
- Net capital expenditures were $258.4 million, compared with $185.1 million in 2021. The company also paid $32.5 million, net of acquired cash, for deBoer.
- At September 30, cash and cash equivalents were $349.7 million and marketable securities were $44.6 million. Total debt, including finance leases, was $212.7 million; senior notes were $205.0 million.
- No borrowings were outstanding under the revolving credit facility or receivables facility. Reported available capacity under the facilities was $322.8 million. The company said operating cash flow and facility availability should meet foreseeable needs, and it was in compliance with financial covenants.
Material changes, segment results, and unusual items
- Truckload: Q3 revenue excluding fuel surcharge increased 18%, supported by dedicated growth, acquisitions, and higher revenue per truck; network volumes weakened. Segment operating income declined about 2%, and its operating ratio rose to 85.4% from 82.4%.
- Intermodal: Q3 revenue excluding fuel surcharge increased about 13%, but operating income fell about 32%. Higher rail and dray costs, network fluidity issues, and costs related to the planned rail-provider transition contributed. Its operating ratio increased to 90.7% from 84.5%.
- Logistics: Q3 revenue excluding fuel surcharge declined about 2% as market conditions moderated, while operating income increased about 26%; its operating ratio improved to 94.0% from 95.3%.
- The company acquired MLS in late 2021 and deBoer in June 2022. deBoer operations ceased during Q3 as employees and equipment were integrated and redeployed.
- Nine-month results included a $57.0 million settlement with former WSL owners and a $5.2 million state sales-tax audit charge. These were partly offset in operating results by a $50.9 million gain on the sale of the Canadian facility. Adjusted measures exclude these items and certain acquisition costs.
- Q3 other income included a $25.9 million pretax gain on equity investments, compared with a $3.1 million pretax loss in Q3 2021. These investment valuation changes affected net income outside operating income.
Outlook, risks, and contingencies
- The filing provides no specific earnings or revenue guidance. Management cited more balanced freight-market conditions, lower network volumes, inflationary operating costs, driver-related costs, rail fluidity, and moderating logistics markets.
- Schneider planned to complete its transition from BNSF to UP as its primary western intermodal rail provider by January 2023. The company identified transition execution and rail-service quality as risks. Rail labor agreement ratification remained unresolved at the filing date.
- West Coast port labor negotiations and potential congestion or interruptions were identified as risks. The company also cited driver availability, fuel costs and recovery, customer demand, inflation, severe weather, cybersecurity, and competition among key risk factors.
- Firm commitments to purchase transportation equipment totaled $508.0 million at September 30. The company planned to renew its $250 million revolving credit facility in Q4 2022. It also planned its annual goodwill impairment evaluation as of October 31, 2022.
- The board declared a Q4 2022 dividend of $0.08 per share, payable January 10, 2023. Management stated that ordinary-course legal matters were not expected to have a material impact, but outcomes remain subject to uncertainty.
Important facts for investors to verify
- Whether the UP rail transition was completed on schedule and without material service disruption or added costs.
- Subsequent effects of rail labor negotiations and West Coast port conditions on intermodal volumes, costs, and customer service.
- Whether freight demand, pricing, and network productivity continued to moderate, and how that affected segment margins.
- Actual capital spending against the $508.0 million equipment-purchase commitments, and renewal terms for the revolving credit facility.
- Final acquisition accounting for deBoer and MLS, and the outcome of the planned goodwill impairment assessment.