Schneider National, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unless noted, amounts are in millions. Schneider provides truckload, intermodal, and logistics services.
Financial performance
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Operating revenue | $1,183.9 | $1,280.1 | $3,590.7 | $3,655.4 |
| Revenue excluding fuel surcharge | $1,069.7 | $1,145.2 | $3,240.5 | $3,269.6 |
| Income from operations | $29.0 | $97.9 | $129.7 | $257.2 |
| Adjusted income from operations | $79.4 | $97.9 | $214.7 | $263.0 |
| Net income | $19.7 | $70.7 | $91.1 | $184.1 |
| Adjusted net income | $57.2 | $70.7 | $154.4 | $188.4 |
| Diluted EPS | $0.11 | $0.40 | $0.51 | $1.04 |
| GAAP operating ratio | 97.6% | 92.4% | 96.4% | 93.0% |
| Adjusted operating ratio | 92.6% | 91.5% | 93.4% | 92.0% |
- Q3 operating revenue fell 8%; revenue excluding fuel surcharge declined 7%. Management attributed the decline to lower freight demand, FTFM shutdown, reduced Logistics revenue, and lower fuel surcharges.
- Q3 GAAP operating income fell 70% and net income fell 72%. The quarter included $50.4 of FTFM restructuring charges and an $11.5 impairment of tractors held for sale. Adjusted operating income declined 19%.
- For nine months, revenue declined 2%, GAAP operating income 50%, and net income 51%; adjusted operating income fell 18%. Results included the $50.4 restructuring charge, $34.6 FTFM goodwill impairment, and $11.5 held-for-sale asset impairment.
- Segment operating income in Q3: Truckload loss of $12.5 versus income of $54.4; Intermodal $25.1 versus $36.1; Logistics $9.9 versus $13.0; Other income of $6.5 versus a loss of $5.6. Truckload revenue excluding fuel surcharge fell 9%; Logistics fell 13%; Intermodal fell 2%. For nine months, Intermodal revenue excluding fuel surcharge increased 9%, while Truckload and Logistics declined 6% and 5%, respectively.
- Operating cash flow for nine months was $470.3 versus $410.1. Investing cash outflow was $355.6 versus $222.1, including net capital expenditures of $312.6 versus $215.8. Financing cash outflow was $56.3 versus $66.7. Cash and equivalents increased to $437.1 from $378.7.
Liquidity, debt, and balance sheet
- Cash, equivalents, and marketable securities totaled $484.5 at September 30, 2019. Total debt, including finance leases, was $406.6; cash and marketable securities exceeded this amount by about $77.9.
- Current assets were $1,527.6 and current liabilities $698.4. Total assets were $3,831.0; shareholders’ equity was $2,192.2.
- Debt included $400.0 of senior notes and $1.3 of equipment financing. The company had no borrowings under its $250.0 revolving credit facility or $200.0 receivables facility, and reported compliance with financial covenants.
- Management stated that operating cash generation and available facilities should be sufficient for foreseeable needs. It also noted future liquidity needs may be met through additional debt, equity, or both.
Material changes, outlook, and risks
- The company substantially completed its structured shutdown of the First to Final Mile (FTFM) service offering by August 31, 2019. It recorded $50.4 of Q3 restructuring charges; combined with anticipated future shutdown costs, management expected total costs to be at the lower end of its $50–$75 estimate. FTFM generated pre-tax losses of $8.9 in Q3 and $34.2 for nine months in 2019.
- FTFM’s entire $34.6 goodwill balance was impaired in Q2 after results remained below projections. A further annual goodwill impairment evaluation was planned for October 31, with results expected to be finalized in Q4.
- Lower freight demand and weaker Truckload productivity pressured performance. Management cited lower volume, price and productivity; Logistics also faced customer insourcing of warehouse management and brokerage rate compression, partly offset by brokerage volume growth.
- Management expected continued year-over-year favorability in salaries, wages, and benefits following customer insourcing, the FTFM shutdown, and cost-saving initiatives. No formal earnings or revenue guidance is stated in the provided filing text.
- Capital spending remains significant: firm commitments to purchase transportation equipment were approximately $278.1. Management described replacement tractor investment as part of its strategy to reduce maintenance and fuel costs and improve the driver experience.
- A lawsuit by former WSL owners seeks an additional $40.0 payment over alleged post-acquisition obligations. Trial was set for April 2020; Schneider said it had strong defenses but warned an adverse judgment could materially affect results.
- Other cited risks include transportation demand and pricing, driver recruitment and retention, fuel costs and surcharge recovery, customer concentration, insurance and claims, weather and seasonality, regulation, cybersecurity, and third-party capacity and railroad dependence. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether FTFM shutdown costs remain within the stated $50–$75 range and whether the shutdown produces the anticipated ongoing cost savings.
- Progress in Truckload demand, productivity, revenue per truck, and operating ratio, alongside Intermodal cost and asset-utilization trends.
- Whether the former WSL owners’ $40.0 claim results in a material payment or other adverse judgment.
- Actual capital expenditure and equipment-purchase commitments relative to cash generation and available liquidity.
- Results of the October 2019 goodwill impairment review and any further impairment indicators.