P.A.M. Transportation looks outside of network to replace lost freight

P.A.M. truck on highway

P.A.M. Transportation Services (NASDAQ: PTSI) held on through the COVID-19-related automotive plant shutdowns to post adjusted first quarter 2020 results close to the record-setting pace of a year ago.

“We started off 2020 with very strong operating results as both January and February each ranked in the top three best January and February operating results in the company’s history. March started off strong, and then of course we encountered the very unexpected chain of events that took place around the world,” said President and CEO Dan Cushman.

Despite roughly 45% of its revenue base shutting down in mid-March, the carrier managed to post consolidated revenue growth of 0.4% year-over-year at $129.2 million.

P.A.M. Transportation is a hauler for many of the large automotive original equipment manufacturers (OEMs), which began to idle plants and production in March in response to the growing pandemic.

The company has been through this type of sudden shutdown recently. Last fall, its largest customer, General Motors (NYSE: GM), suffered a 40-day shutdown during the United Auto Workers labor strike. This resulted in the carrier scrambling to find freight for 400 drivers in its network.

“Fortunately, we have also developed a strong non-automotive customer base over the last 10 years, many of which provide what was deemed ‘essential goods’ during this crisis. We were able to redeploy drivers that had been hauling automotive freight to those customers,” said Cushman.

Noting that there was still a “sizable void,” the carrier looked outside of its normal customer list to find freight, asking “friends in the industry” – their competitors – for help.

“It seems any transportation provider that was involved in hauling for customers that supplied ‘essentials’ were covered up in freight, and without exception, those providers took us up on our offer of capacity,” continued Cashman.

In the quarter, the carrier reported total miles just slightly under the year-ago period with empty miles increasing 30 basis points to 7.8%. Revenue per loaded mile excluding fuel increased 2.1% to $1.83, but revenue per truck per week dipped 4.3% to $3,355.

P.A.M. Transportation’s Key Performance Indicators

P.A.M. Transportation responded quickly as OEMs began to idle plans. The carrier started trimming its nondriver workforce on March 20.

“To finish the first quarter with as strong of an operating profit as we did was as impressive a display of execution from our team as I’ve ever seen. While it seems as if the extremely tight capacity issues resulting from the surge shipping of ‘essentials’ calmed down around the first full week of April, I think PAM Transport is well-positioned to keep our fleet productive over the next few weeks in anticipation of the automotive OEMs resuming production,” said Cushman.

Cushman said that all of the automotive OEMs have planned returns scheduled for the end of April or early May. Further, the freight that the company has picked up to fill the void has Cushman expecting the company to be “well-positioned for the economic recovery.”

Cushman said that the company is seeing “very strong” results from its Mexico division, which should be further bolstered by the recent acquisition of a new terminal in Laredo. P.A.M. Transportation saw 36% of its cargo cross the Mexican border in 2019.

The logistics group had a tough quarter as volumes surged when consumers looked to fill their cabinets with groceries and household essentials as lockdowns went into effect. As truck capacity tightened, logistics providers were forced to pay up. This caused P.A.M. Transportation’s logistics margin to deteriorate 510 basis points in the quarter.  

“We continue to add customers to our Logistics division, but currently buying partner-carrier capacity is coming at a cost that challenges margins,” said Cushman.

The Tontitown, Arkansas-based carrier reported first-quarter adjusted earnings per share of $0.88, $0.04 better than the consensus estimate.

At the end of 2019, the company had $29.8 million in cash and marketable securities. In the first quarter of 2020, broad stock market declines resulted in an $8.8 million unrealized noncash loss associated with declines in the company’s equity investments. Including the noncash loss, the carrier posted a $1.3 million, or $0.23 per share, net loss in the first quarter.

Additional liquidity includes the company’s $60 million line of credit, which had $42.6 million of availability at the end of 2019. At the time, the company was within its 4x debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) covenant at nearly 3.5x leveraged.

No balance sheet update was provided with the company’ earnings report. The company includes a balance sheet with its quarterly 10-Q filing with the U.S. Securities and Exchange Commission, typically two weeks after its quarterly earnings results are released.