When U.S. Xpress (NASDAQ:XPRSA) and Covenant Transport (NASDAQ:CVTI) warned investors a few weeks ago about disappointing earnings, many feared that it was the beginning of the end for the strong market for truckers. As the earnings releases have come in, though, it seems as though the problems are more company-specific than industry-wide.
U.S. Xpress announced first-quarter earnings that were essentially in line with the company's lowered guidance. Revenue climbed nearly 15%, but higher expenses led to an operating loss and a net loss for the quarter. As a result of those higher operating costs, the company's operating ratio climbed to 100.8% from 98.4% (remember, higher is bad).
In the trucking business, revenue (excluding fuel surcharges) was up about 9% as higher revenue per mile was offset by fewer tractors operating during the quarter. During the conference call, management suggested that the company lost shipping volume because of its rate increases and might have outpriced itself as cargo was diverted to other carriers.
The company's Xpress Global Systems division was particularly disappointing. Xpress Global is a somewhat odd business that provides transportation and distribution services to the floor-covering industry as well as airport-to-airport transportation services for the airfreight industry. While revenue in this business was up 19.2% for the quarter, the division reversed a small year-ago operating profit and reported a $3.5 million operating loss -- 175% of the company's overall operating loss.
Though company managers acknowledged that the Xpress Global business is disappointing and that their patience is wearing thin with the division, they believe that shutting down the operation today would cost more than trying to fix it. Consequently, this business will likely be an ongoing drag on results, and investors would do well to track the improvement (or lack thereof) in this division in the coming quarters.
The company also reiterated its difficulties with driver recruitment. Looking at what other haulers are reporting, though, the issue isn't so much a shortage of drivers as it is an issue of recruiting and retaining drivers. The market for truck drivers is currently something of a "seller's market," and drivers have more leverage in terms of working for companies that offer better pay and/or better working conditions. Given that other haulers seem to be finding enough drivers to fill their seats, the problem does seem to be company-specific at this point.
U.S. Xpress shares aren't expensive on a relative P/E basis, but I'm not sure there's a compelling reason to own the stock -- even if business improves through the rest of the year, as management expects. I'm a diehard believer in turnarounds, but I can't justify buying these shares when investors could look at other carriers like Old Dominion (NASDAQ:ODFL), Landstar (NASDAQ:LSTR), or even Arkansas Best (NASDAQ:ABFS).
For more on the trucking sector, we offer a convoy of earlier write-ups:
- Is Arkansas Best Best Bet?
- Old Dominion, Happy Hauler
- CNF Delivers Profits
- Landstar Gets a Gold Star
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
