The truckload industry’s downturn is “closer to the tip than the start,” Derek Leathers, Werner Enterprises’ chairman and CEO, told investors Tuesday on the Wells Fargo Industrials Conference in Chicago. He’s encouraged that spot rates held the uptick from May’s International Roadcheck, when some operators parked equipment to avoid safety checks by law enforcement, but said the market still hasn’t reached an inflection point.
The corporate continues to see rate pressure in the present bid season, but there was less customer turnover this yr. It’s “definitely higher than a yr ago,” Leathers said about rate negotiations, but he noted that some bid implementations have been delayed.
“It’s not an incredible time to go shuffle your deck dramatically by way of your carrier providers,” Leathers said. He believes that the majority shippers realize an end to a depressed rate cycle is nearing. Werner (NASDAQ: WERN) has been “pretty firm” in recent negotiations, noting it has little margin left to give up after several years of above-normal cost inflation.
He reiterated the corporate’s pricing guidance but said “it’s a dogfight on daily basis to get there.” That guide calls for revenue per truck per week within the dedicated segment to be flat to up 3% yr over yr in 2024 and revenue per total mile on the one-way fleet to drop 6% to three% y/y in the primary half.
Overall, Leathers sees opportunities for rate increases because the yr progresses. Werner’s one-way segment has low-double-digit exposure to the spot market currently.
Higher import volumes (a reversal from large declines last yr), multiple quarters of inventory “right-sizing” and a consumer spending mix of products and services getting back to a historical balance (following a post-COVID run-up in services spending) may very well be positive catalysts for demand, Leathers said.
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Werner also has some internal initiatives that ought to boost earnings when the cycle improves.
It implemented $43 million in cost savings programs last yr and has a further $40 million pegged for this yr. Leathers said roughly two-thirds of the expense reductions are sustainable, with the remaining reductions likely reversed when the market turns.
The corporate reiterated its TL operating margin guidance of 12% to 17% throughout the cycle. The adjusted margin was just 4.7% in the primary quarter. Werner estimates a 5% to 10% rate increase within the one-way segment would produce a 300-basis-point improvement in operating income.
The one-way fleet is seeing improved equipment utilization. Revenue per tractor per week was up 6% y/y in the primary quarter as miles per tractor increased 11% while the unit’s truck count fell 13%. The utilization improvements are expected to supply more pronounced ends in a greater rate environment.
The dedicated unit has seen truck counts decline on the account level throughout the downturn (down 268 units in total in the course of the first quarter from a peak of 5,417). Because the market improves, existing accounts will begin to require additional units. Unit growth at existing accounts produces higher margins versus recent accounts, which have startup costs.
Gains on the sale of tractors and trailers normally accounts for 10% to fifteen% of Werner’s earnings. The corporate is achieving that threshold currently, but that’s as a consequence of overall earnings being depressed. Used equipment prices have weighed on gains, but Werner believes future emission mandates will boost used values. It also expects to see above-market returns because it leverages its proprietary fleet sales group to maneuver the equipment.
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