Heartland Express earnings miss partly related to recent acquisition

Heartland Express truck on road

The weaker operating environment provided Heartland Express Inc. (NASDAQ: HTLD) an opportunity to acquire a $150 million peer. However, that company, Millis Transfer, which operated at a 90%-plus operating ratio (OR) prior to the deal, weighed on Heartland Express’ fourth-quarter 2019 results.

The Iowa-based truckload (TL) carrier reported fourth-quarter 2019 earnings of $0.16 per share, well below the consensus estimate of $0.23 and the prior year’s $0.27.

“During the fourth quarter, operating revenues were improved, while net income, basic earnings per share and operating ratio results were negatively impacted by the inclusion of the financial results of Millis Transfer following the acquisition and market dynamics,” a press release said.

For the fourth quarter 2019, the carrier reported a 13.8% year-over-year increase in revenue in large part due to the August acquisition. However, the company reported a 40% decline in operating income with an adjusted OR of 87.9%, 1,120 basis points worse year-over-year.

Heartland Express Key Performance Indicators

The press release stated that in all of the eight acquisitions Heartland Express has made, every acquired entity was operating at an OR in the 90s or higher. Even after such deals, the company has a track record of quickly integrating the acquisition and returning to industry-leading operating results.

Heartland Express does not provide any operating metrics around utilization and pricing. In this iteration, the company provided a reflective look over its last four decades of operation.

“We do not operate based on the short-term mind-set. Our operating model is built on the long-term foundations that have stayed true for us in good operating environments and bad and have allowed us to deliver efficient and consistent operating results,” Heartland Express CEO Michael Gerdin reminded investors in the release.

The press release called out several accomplishments, including 20-year average returns on assets of 11.6% and equity of 17.1%. Over the 40-year period, Heartland Express has generated compounded annual growth rates of 11.8% for revenue and 12.3% for net income. The release also showed that the company has always operated with a sub-90% adjusted OR and remained mostly debt free except during periods of acquisitions.

Heartland Express is now debt free following the Millis acquisition. In the quarter, the carrier paid $61.9 million to complete the acquisition and $93.3 million to retire the debt on Millis’ equipment. Heartland Express ended the year with $76.7 million in cash on hand, concluding the year with a stronger balance sheet than previously estimated. At the time of the deal, management was forecasting an ending 2019 cash balance of $50 million to $60 million.

Lastly, the press release made reference to two other accomplishments. “The company ended the quarter with total assets of $898.9 million and stockholders’ equity of $684.7 million, an all-time record.”

Shares of HTLD are off 2% on the day.

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