Saia, Inc. (NASDAQ:SAIA) Q2 2023 Earnings Call Transcript

Saia, Inc. (NASDAQ:SAIA) Q2 2023 Earnings Call Transcript July 28, 2023

Saia, Inc. beats earnings expectations. Reported EPS is $4.1, expectations were $3.27.

Operator: Hello, my name is Chris, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Q2 2023 Saia Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Doug Col, Executive Vice President and Chief Financial Officer. You may begin.

Doug Col: Thanks, Chris. Good morning, everyone. Welcome to Saia’s second quarter 2023 conference call. With me for today’s call are Saia’s President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. I’ll now turn the call over to Fritz for some opening comments.

Fritz Holzgrefe: Good morning. And thank you for joining us to discuss Saia’s second quarter results. While continuing to manage through an ongoing softer economic environment, I’m proud to present what I view is very solid results produced by our team in the second quarter of 2023. On a bright note against easing year-over-year comparisons, the pace of volume declines moderated each month as we move through the quarter and have actually turned positive so far in July. We believe changing industry dynamics over last several weeks have played a role in this. Internally, we monitor our customer satisfaction metrics on a daily basis. For the quarter our trends continue to progress favorably, as customers are increasingly satisfied with our service both in our legacy facilities, as well as the new facilities opened in the last couple of years.

It is gratifying to see our team’s commitment reflected in the financial results. Despite an overall fray environment down compared to the prior year we saw solid results in the quarter. Total revenue of $694.6 million was down only 6.8% compared to last year’s record second quarter revenue, despite a 3.8% fewer shipments and the fuel surcharge revenue being down nearly 32%. Our focus on service, pricing and mix of business has been key to offsetting these factors and our yield, excluding fuel surcharge revenue improved by 2.7%, compared to last year even with the headwind created by an increase in weight per shipment, and a decline in length of haul. We continue to highlight the importance of business mix and freight selectivity and closely monitor our revenue per shipment.

A key metric for our team. In the quarter revenue per shipment excluding fuel surcharge increased by 4.8% benefiting from a 2.2% increase in average weight per shipment. Industry pricing continues to be resilient in the face of negative tonnage trends, and we saw an average contractual renewal increase of 5.3% in the second quarter. Our second quarter operating ratio of 82.7% deteriorated 230 basis points compared to our operating ratio of 80.4% posted in the second quarter last year. But again, that was a record quarter for both revenue and OR and the industrial economy has changed meaningfully since then. I’ll now turn the call over to Doug for more details from our second quarter results.

Doug Col: Thanks, Fritz. Second quarter revenue decreased by $50.9 million to $694.6 million. Yield excluding fuel surcharge improved by 2.7%, while yield decreased by 4.8%, including the fuel surcharge. Fuel surcharge revenue decreased by 31.7% and was 15.9% of total revenue compared to 21.7% a year ago. Revenue per shipment ex-fuel surcharge increased 4.8% to $287.9 compared to $274.6 in the second quarter of 2022. Tonnage decreased 1.7% attributable to a 3.8% shipment declined, slightly offset by 2.2% increase in our average weight per shipment. Our length of haul decreased 2% 892 miles. Shifting to the expense side for a few key items in the quarter. Salaries, wages and benefits increased 5.7% from a combination of our July 2022 wage increase, which averaged 4.3% across our employee base, and also the result of our employee headcount having grown by approximately 1.1% year-over-year to support our network expansion over last 12 months.

Purchase transportation expense decreased by 45.8% compared to the second quarter last year, and was 7.2% of total revenue compared to 12.3% in the second quarter of 2022. Truck and rail purchase transportation miles combined were 11.8% of our total linehaul miles in the quarter, compared to 19.3% in the second quarter of 2022. Fuel expense decreased by 25.8% in the quarter, despite of company miles increasing 6.6% year-over-year. The decrease in fuel expense was primarily the result of national average diesel prices decreasing by over 28% on a year-over-year basis. Claims and insurance expense increased by 19.3% year-over-year in the quarter it was up 20.6% or $2.9 million sequentially from the first quarter of 2023. The increase reflects a combination of premium cost inflation and some expense related to development on older claims.

Depreciation expense of $44.7 million in the quarter was 20.9%, higher year-over-year, primarily due to the acquisition of terminals, tractors and trailers. Our total operating expenses decreased by 4.2% in the quarter and with the year-over-year revenue decrease of 6.8%. Our operating ratio deteriorated to an 82.7% compared to 80.4% a year ago. Our tax rate for the second quarter was 24.7%, compared to 24.4% in the second quarter last year, and our diluted earnings per share were $3.42 compared to $4.10 in the second quarter a year ago. I’ll now turn the call back over to Fritz for some closing comments.

Fritz Holzgrefe: Thanks, Doug. So below last year’s first half results, overall, I’m very pleased with our first half financial results. To operate with an OR in the low to mid-80s. At this point, the freight cycle is a testament to the improved operating performance of our team over the last few years. Our customer first focus is yielding tangible results across our organization, a singular focus on the customer is a rallying point for our employees. As reflected in the record employee engagement with survey we completed recently. With a talent and engaged workforce the value proposition to our customers continues to grow. A key component of our market share opportunity is the closer to the customer and give them the chance to choose Saia for their LTL needs more often.

I’m excited about the five new terminals we’ve managed so far. This year, we’re on track to open three to four more by the end of the year. At the same time, we continue to develop the markets around the other 20 plus terminals we’ve opened over the last two years. Although we’re excited about the early success of these locations, we see considerable runway to continue to penetrate those markets. While our pipeline for terminal openings carries us well into 2025 and beyond. Keep in mind that a key benefit of our organic expansion strategies it allows us to go at the pace that suits us. Our business cycle is subject to cyclicality and depending on where we are in the cycle, we may see an opportunity to accelerate or even slow down our terminal expansion activity.

Importantly, we have positioned the company to execute on our organic expansions quickly as opportunities become available. Finally, before opening the call for questions, I would say there’s still a lot of uncertainty around the strength in the economy we faced in the second half and beyond. That uncertainty is heightened for the LTL industry through the current well documented disruption. At Saia, we’ve emphasize the importance of the customer and focusing on things that we can control. So as our industry adjusts to the current disruption and adapts to the evolving economic environment over the coming months, my conviction about the long term prospects at Saia remain steadfast. Great employees, great service and a growing footprint, all key to securing our position as a long-term share gainer in this industry.

With that said we’re now ready to open the line for questions, operator.

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Q&A Session

Operator: [Operator Instructions] The first question is from Jack Atkins with Stephens. Your line is open.

Jack Atkins: Okay, great. Good morning, and thanks taking my questions, guys. So I guess — I’m going to ask the obvious one. What really appreciate maybe if we could get a little update on July tonnage and shipment trends, Doug, I don’t know if you want to take that or Fritz. But, obviously, I would imagine the first half of the month is different than what you’ve been seeing over the last week to 10 days. So if you could maybe quantify that a bit. I think that’d be helpful as well.

Doug Col: Sure, Jack. First of all, congrats on your summer activities.

Jack Atkins: Thanks. Thanks. So glad to be married.

Doug Col: Happy for you. So June, you guys have April May numbers, we put that out in the early June press release. So, the June numbers, our shipments were down 1.8% year-over-year, while tonnage was down 2.2%. So weight per shipment dipped in June by 0.4%. So mid-June I’d say we started seeing some lighter weighted shipments some of that, some of the activities we were working on over the course of the year and probably some of that already seen some freight flow into the network from newer customers as well. So that weight per shipments kind of trend start in June, and its continued here in July in terms of lighter weight. So for July, month today through yesterday, shipments are up about 5% and tonnage is up about 2.5%. Again, that average weight per shipments trended down, but it makes sense to us versus what’s going on out there.

Jack Atkins: Got it. And then in terms of just what you’ve been seeing, in the last couple of weeks, maybe last week, how does that differ versus that the month today trends, and I guess, kind of bigger picture for my follow up question, Fritz as you’re sort of thinking about maintaining high levels of service, it’s critically important to the Saia story and your value proposition. With this disruption in the marketplace broadly, can you walk us through how you and the team are really trying to make sure that you’re protecting the network from any disruption from all this?

Fritz Holzgrefe: Yes, good questions. What I would say is that first of July — July 3, is sort of the hanging holiday right before the fourth, that was a Monday to recall. So that was a little bit of a lighter shipment day. And it was a bit challenging from a cost perspective and such. And so that first week of July was sort of holiday impacted. But you know, that is every year. And I think we’ve seen the business levels trend more favorably in the last two weeks. So if that’s been a positive trend, I think the — it’s been a big contributor to what we’re seeing so far in our results in July. But I think the key thing for us is that focus on customer and maintaining the service levels, picking up the freight managing our freight, or managing our customer base to make sure we understand what it is we’re picking up, what the requirements are, what — can we execute on that and significantly, making sure that the economics work with this.

So we feel very strongly that we’ve got a tremendous service offering. So it is critical to us to maintain that service offering. And it’s also critical to us to make sure that we’re compensated appropriately for that high level of service. Customers, this is a unique opportunity, in a disruptive time, that we can show customers, and this is what you get with Saia. And that’s differentiated high level of service. And we think that if we execute on that, well, we can hang on to this, or this will kind of the share will come to us over time, really been our long term strategy. And maybe the disruption here in the last couple of weeks is helped us accelerate that a bit. But we’ll see how it plays out. There’s a lot that still could change here in the next number of weeks.