This is kind of strange. Despite steadily rising prices for both fuel and drivers, most trucking companies have enjoyed a pretty hospitable climate on Wall Street -- with stock-price percentage gains ranging from the mid-teens for carriers such as Arkansas Best
Oddly enough, though, one of the industry's best-run companies in terms of return on capital and profit margin has seen its stock fall a bit during that time. I speak of Iowa-based short-to-medium hauler Heartland Express
Perhaps part of the problem is that Heartland provides much less information than its peers do. If you're accustomed to the normal statistical rundowns on topics like revenue per hundredweight or tonnage per day, forget about that with Heartland. You get an income statement, a balance sheet, and that's about it -- not even a conference call, so far as I can tell. Of course, the real problem may just be that when you're already at the top, it's a lot harder to do much better.
Operating revenue in the fourth quarter grew 17%, reported net income rose almost 31%, and the operating ratio (operating expenses divided by operating revenue) improved from 79.4% to 77.6% as reported. That "as reported" is a key bit here. The company is in the process of upgrading its fleet and has to recognize gains from the trade of revenue equipment -- an act that pumps up results.
The company didn't provide much detail here, but I think we can guesstimate our way toward a number. In the third quarter, the company acquired 200 new tractors and recognized about a $2 million gain. Ergo, with the company adding 400 tractors this period, I would estimate a gain somewhere around $4 million to $5 million. Taking the higher number, earnings per share would have been up about 9% and the operating ratio would have worsened to around 81.5% -- in large part because of higher fuel costs, the bulk of that "operations and maintenance" line in the income statement.
As Heartland was the first major carrier to report earnings, we'll need to wait a bit to put this performance in context. Already, though, I find it interesting that Heartland saw such higher fuel costs even though prices fell through most of the quarter. I'll also be waiting to read the 10-Q and see how much revenue growth came from fuel surcharges as opposed to growth in the base business. In the meantime, despite very solid margins and returns on capital, I don't see the stock as undervalued.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
