Werner Enterprises(WERN) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2023, revenues increased by 9% year-over-year, while adjusted EPS decreased by 37% to $0.60. The adjusted TTS operating margin for the quarter was 10.7%, compared to 13.8% for the last 12 months [19][19][19] - The dedicated freight demand was solid and steady, with a sequential decline of 105 trucks in the dedicated fleet [19][20] - Despite a nearly 40% year-over-year decline in spot freight rates, the revenue per mile only decreased by 3%, which was at the upper end of the guidance range [22][22] Business Line Data and Key Metrics Changes - Truckload Transportation Services (TTS) revenues increased by 5%, but adjusted operating income decreased by 31%, with a decline in adjusted operating margin of 570 basis points year-over-year due to increased operating expenses [33][33] - Dedicated revenues net of fuel increased by 9%, with average trucks up by 4% and revenue per truck increasing by 5% [39][39] - Logistics revenues grew by 21%, driven by the acquisition of ReedTMS Logistics, which contributed to a significant increase in refrigerated Truckload Logistics business [40][40] Market Data and Key Metrics Changes - The freight market in Q1 2023 was challenging, with a significant decline in spot rates and overall freight demand [54][56] - Retail inventory destocking is nearing completion, with large retailers reporting a reduction in inventory dollars per store, indicating a potential increase in freight shipments [92][92] Company Strategy and Development Direction - The company is focused on operational execution and maintaining a resilient portfolio through its dedicated fleet and diversified logistics segment [10][10] - The strategy includes reinvesting in the truck and trailer fleet, enhancing technology, and capturing synergies from recent acquisitions [45][46] - The company aims to build a premier Final Mile solution and continues to prioritize investments in technology and sustainability [62][62] Management's Comments on Operating Environment and Future Outlook - Management anticipates continued challenges in the freight market for the second and potentially third quarters, with expectations for improvement in the second half of the year [56][56] - The company is optimistic about its ability to maintain long-term operating margin guidance of 12% to 17%, despite current market pressures [68][68] Other Important Information - The company ended Q1 with over$ 500 million in liquidity and a low net debt-to-EBITDA ratio of 0.9x, indicating a strong financial position [43][43] - The integration of ReedTMS and Werner Brokerage is on track, with significant progress in systems integration and cost savings [31][31] Q&A Session Summary Question: Current market conditions and outlook - Management noted that April showed signs of improvement in freight flows, particularly in the food and beverage sector, but remained cautious about the overall market outlook [66][66] Question: Maintaining TTS margin range - Management emphasized a focus on cost control and operational efficiency to stay within the long-term margin guidance, despite challenges faced in Q1 [68][68] Question: Performance of Dedicated and One-Way margins - Management confirmed that Dedicated margins remain intact, but One-Way margins faced more significant pressure due to increased costs [74][74] Question: Revenue per mile guidance - Management indicated that negative rate renewals would pressure One-Way trucking metrics, but there are opportunities for improvement as the market stabilizes [88][88] Question: Demand outlook from retail customers - Management reported that large retailers are nearing the end of their inventory destocking phase, which could lead to increased freight shipments [92][92]