USA Truck Sees Best First Quarter In Eight Years

May 06--USA Truck is "off to a solid start" in 2015 with earnings per diluted share of 11 cents in the first quarter to make it the 10th consecutive quarter of year-over-year financial improvement, according to the Van Buren-based transportation company's interim chief operating officer.

It was the first profitable first quarter for USA Truck in eight years and the fourth consecutive profitable quarter amid a shift in corporate strategy to become more of "capacity solutions" provider.

"We're continuing our customer-driven transition from a trucking company to a capacity solutions provider with growing complimentary services including a growing mix of repeated business," Interim COO Tom Glaser said during an earnings conference call Tuesday.

Glaser, a USA Truck board member since May 2014, was named as interim COO in early April when USA Truck CEO John Simone took an indefinite medical leave.

Glaser said the first-quarter results "reflect positive contributions" from both their trucking segment and the SCS division, which is USA Truck's freight brokerage service arm. SCS matches customer shipments with available equipment of authorized carriers and made up 29 percent of USA Truck's revenue during the first quarter.

In trucking, base revenue rose 1.7 percent year-over-year to $81.5 million while operating expenses adjusted for fuel surcharge decreased $5.4 million, or 6.3 percent.

Adam Wyden of ADW Capital Partners LP in New York, a 3 percent share stake holder, said although "gross margins were flat," he believed the company was "finally clicking."

"I'm pleased. They've made some great new hires ... and their change in proxy compliments the alignment of interests," Wyden said. "They're returning to their roots of being lean and mean."

Wyden pointed out that USA Truck's maintenance and insurance costs have decreased, and while the broader transportation market was down Tuesday, he was disappointed that USAK stock was not responding better to the positive first-quarter report. USAK opened up at $25.69 and dropped over 4 percent after the earnings report.

One of the new hires Wyden specifically referred to was Michael Borrows as chief financial officer. Borrows took over for outgoing CFO Clifton R. Beckham at the end of September.

Brad Delco, managing director at Stephens Inc. Research, said that while USA Trucks' results were good and the outlook for trucking was still positive there were several underlying factors and perceptions about the economy's rate of change and pace of growth "decelerating."

"It has more to do with the macro environment," Delco said of the lowering stock prices Tuesday.

As a result of several changes in the freight environment, Glaser noted in a news release, USA Truck's adjusted operating ratio improved to 99.2 percent, an 840-basis-point improvement over last year's first quarter. The SCS division had an adjusted operating ratio of 91.2, compared with 86.4 in the prior-year period. This was primarily due to increased fixed cost supporting plans, he states.

"These changes reflected a strong freight environment, lower diesel fuel prices, and several company-specific initiatives, including fuel efficiency measures which produced a 4.8 percent improvement in miles-per-gallon, our improving preventative maintenance program, and variable expense reductions," Glaser stated.

Revenue was impacted by the "softer spot market" during the first quarter of 2015, compared to the uniquely strong spot market created by the harsh winter weather in the prior year.

The nation's truck driver shortage continues to be an issue for transportation companies. Overall freight volume for the first quarter was impacted by a lower seated truck count, but USA Truck says they expect to implement a "significant increase" in driver pay on June 1 to help increase driver numbers. Improving seated tractor count was a" top priority" in 2014 as well, Simone said in the fourth quarter report.

Higher driver compensation costs will be covered through yield management, continued operating cost savings and cost efficiency gains, as well as increased base revenue, the company states. Company leaders said Tuesday the pay for drivers will increase in the "double digit" percentage range. Some gains have been seen already, with the number of USA Truck owner-operators increasing from 143 to 218 drivers.

Weekly revenue per seated truck exceeded $3,000 for the fifth consecutive quarter and grew 5.4 percent year-over-year on the strength of an 8.1 percent increase in rate per loaded mile. This was partially offset by lower miles per tractor and "increased deadhead percentage attributable to a change in mix of service offerings," the release states.

Speaking to the move toward a more SCS-driven company, Glaser said "we believe we are in the early innings of USA Truck's transformation, with ample room to realize substantial earnings leverage and drive increased return on invested capital."

Within their SCS business, their goal is to "cross sell" customers to increase load count, hold gross margin, and "realize the benefits of our investment in people and technology as higher revenue is spread across our fixed costs."

USA Truck's new Dedicated Services Group also saw increasing revenues in the first quarter, Glaser added. The division was created in the fourth quarter of 2014.

Chairman of the Board Robert Peiser said in the release he appreciated USA Truck's team members" for their "steadfast dedication and enthusiastic pursuit of profitable base revenue growth, operational execution and cost effectiveness."

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