Saia’s Q1 outperformance not overshadowed by bleak near-term

Saia double on the highway

Less-than-truckload (LTL) carrier Saia, Inc. (NASDAQ: SAIA) is seeing a sharp falloff in demand during April following a very strong operating performance in the first quarter of 2020.

The Johns Creek, Georgia-based carrier reported first quarter earnings per share of $1.06 compared to analysts’ forecasts of $0.81.

On the company’s first quarter 2020 earnings call, management said that so far through April total shipments are down 17% year-over-year with tonnage declining 13%. Of note, management called out specific weakness in energy-related demand in Houston and port-related activity in Los Angeles.

During the first quarter, the carrier reported a total revenue increase of 8.7% year-over-year as tonnage grew 5.6% and revenue per hundredweight, or yield, increased 3.1%. On a year-over-year comparison, shipments increased 8% and 1.5% in January and February, respectively, but declined 2.5% in March.

Key Performance Indicators – Saia

Saia’s robust growth rates follow an aggressive expansion project in the Northeast that started in May 2017, accelerating with the closure of New England Motor Freight, Inc. in February 2019. Saia now has 19 terminals in the region, opening nine during 2019. In the first quarter, Saia operated 10 additional terminals compared to the prior year period, a significant contributor to the year-over-year revenue growth.

During its fourth-quarter 2019 earnings call in February, the carrier announced plans to significantly slow network expansion in 2020, attempting to better integrate the Northeast region with its national network. On today’s call, management said that it will continue to focus on increasing throughput and optimization at its current facilities rather than acquiring new terminals.

Management said that price negotiations throughout the LTL industry remain “rational.” During the first quarter, the company reported that contractual rates increased 4.6% year-over-year. The carrier implemented a 5.9% general rate increase (GRI) in early February. Management said that Saia is normally able to retain approximately 80% of new GRIs. They don’t believe that COVID-19 headwinds will impact customer acceptance of this year’s GRI as lower diesel fuel prices, down 5% in the first quarter, are making the increase more manageable for its customers.

When pressed on future guidance or expectations, Saia’s President and CEO Fritz Holzgrefe said “we’re challenged to forecast next week much less the full quarter.”

In response to weaker shipments as a result of widespread business closures, the carrier has reduced its workforce by 16% through furlough, early retirements and reduced work hours for its part-time staff. The company has also lowered executive and performance-based compensation and suspended 401k contributions.

At the beginning of April, the carrier increased paid time off by five days for full-time workers and one day for part-time staff. Management said that the company will incur an additional $10 million in benefits expense stemming from the increases in paid leave throughout the rest of the year.

The company’s consolidated operating ratio improved 170 basis points year-over-year to 91.3%, a first quarter record for the carrier.

Saia ended the quarter with $47 million in cash and more than $300 million of available revolving credit capacity. The company’s total debt increased $87 million year-over-year to $236 million, in part due to the terminal expansion project.

Saia recorded $103 million in net capital expenditures (capex) in the quarter and expects capex to be lower than its original guidance of $250 million as it has deferred tractor deliveries. Management noted that investments in an LTL network can’t be reduced for a prolonged period of time without causing service issues in the future. The company recorded net capex of $287 million in 2019 (including equipment acquired on capital leases) and $252 million in 2018. 

Holzgrefe succeeded Rick O’Dell as CEO on April 28. O’Dell, who served as CEO since 2006, has assumed the role of non-executive chairman, replacing Bert Trucksess who retired from the company’s board after 28 years of affiliation with Saia. Holzgrefe joined Saia as the CFO in 2014, most recently serving as President and Chief Operating Officer since January 2019.

Shares of SAIA are up more than 15% in midday trading.