The North American Free Trade Agreement (NAFTA) has been in place for more than 11 years now, and pundits still debate its merits. There is little disagreement, though, that NAFTA has greatly increased the volume of trade among the U.S., Canada, and Mexico. Small trucking services firm Celadon Group (NASDAQ:CLDN) has positioned itself to take advantage of this dynamic.
The firm, which is based in Indianapolis and opened in 1985, announced on Monday that it experienced the best third quarter in its history. Operating revenue rose 9.8% to $108.5 million. Net income, meanwhile, doubled to $2.7 million. Granted, this profit margin is not likely to blow anyone away. Celadon is showing some progress in improving efficiency, though, as pre-tax margins increased to 4.5% from 2.9%. Meanwhile, the firm has also improved other operating metrics, including customer mix, as no client now accounts for more than 5% of revenue.
Besides seeing gains from internal efforts, Celadon has benefited from external factors. The economies of NAFTA countries continue to expand steadily. At the same time, trucking capacity and truck drivers are in short supply. Celadon has responded to this trend by acting as a consolidator. The company has made three acquisitions since 2002, according to TheIndianapolis Star, the most recent of which was the $22.7 million purchase of assets from CX Roberson, announced early this year.
In addition to traditional trucking services, Celadon has been growing a small side business in online services with its TruckersB2B, a marketplace for small truck fleets. The idea is that by allowing smaller operators to buy in bulk, TruckersB2B provides the same kind of discounting advantage enjoyed by larger players such as Werner Enterprises (NASDAQ:WERN) and JB Hunt Transport (NASDAQ:JBHT). So far, TruckersB2B is still fairly small, but growing: Operating income in the third quarter increased 25% from the prior year to $340,000.
Admittedly, Celadon is a small player with plenty of competition. But its improving operating trends and positive external developments may mean it's worth a closer look.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
