Werner Enterprises(US:WERN)2021-07-30 13:33Financial Performance - The company reported record earnings in Q2 2021, with revenues increasing 14% to $650 million and adjusted EPS growing 40% to $0.86 per share [12][19] - Adjusted operating income increased 37% to $79.1 million, with an adjusted operating margin, net of fuel, growing 340 basis points to 17.1% [12][19] - The TTS adjusted operating ratio improved to 82.9% [20][94] Business Segment Performance - TTS revenues increased 10% driven by higher revenues per mile, while dedicated freight revenues grew by 10% to $262 million [20][21] - One-way truckload revenues decreased 1% to $166 million, but revenues per truck per week increased 14.8% due to higher revenues per total mile [21] - Logistics revenues grew 29% to $142 million, with truckload logistics revenues increasing 49% [22] Market Conditions - The retail inventory to sales ratio reached a new 30-year low, indicating strong future freight demand [7] - The driver shortage remains severe, impacting the ability to grow the fleet organically [8][17] - The company added 500 trucks and skilled drivers through the acquisition of ECM Transport Group, enhancing its regional fleet presence [10][28] Strategic Direction - The company aims to leverage its consumer-oriented freight base and enhance its logistics capabilities through technology and strategic acquisitions [9][24] - The acquisition of ECM is expected to be accretive to adjusted EPS in the first year and strategically expands operations in key regions [28] - The company is committed to sustainability and has published its inaugural corporate social responsibility report, outlining specific ESG goals [36][40] Management Commentary - Management expressed confidence in strong freight demand continuing through 2022, supported by retail inventory replenishment needs [6][48] - The company is focused on maintaining a strong financial position with a long-term leverage goal of a net debt to annual EBITDA ratio of 0.5 to 1 turn [26][27] - Management acknowledged challenges in driver recruitment but remains optimistic about future growth opportunities [30][68] Other Important Information - The company plans to maintain net capital expenditures in the range of $275 million to $300 million for 2021 [23][44] - The company is expanding its driver training school network to improve driver recruitment and retention [30] - The company is implementing innovative technology solutions to enhance operational efficiency and reduce maintenance downtime [33][34] Q&A Session Summary Question: What signs do you look for in terms of demand continuation? - Management highlighted customer conversations and macroeconomic data as indicators, noting a low inventory to sales ratio and a net fleet decline in the industry [52][54] Question: How do you view margin progression in the back half of the year? - Management indicated that seasonality may be affected by the strong second quarter, but they expect to continue improving margins through capacity creation and contract rate increases [58][60] Question: What is the impact of the ECM acquisition on utilization? - The ECM acquisition will contribute to rate per mile improvements, but the lower length of haul will result in lower miles per truck [62] Question: How is the dedicated business performing? - Management reported strong performance in dedicated, with a robust pipeline and successful driver recruitment efforts [78][80] Question: How do you manage the trade-off between dedicated and one-way truckload? - Management emphasized the importance of driver preferences and the stability offered by dedicated contracts, which can provide long-term returns [86][88]