Operating margins of truckload carriers
Previous in this series, we examined the top line figures of the major US road transportation (XLI) companies and their revenue growth. Here, we’ll move to their first-quarter operating income. Transportation companies pay particular attention to their operating ratios. The operating ratio is expressed as operating expenses as a percentage of revenues.
The flip side of operating ratio is operating margin. The higher the operating margin, better are the earnings and vice versa. Let’s evaluate the operating margins of the major US trucking companies in the first quarter.
Truckers with higher operating margins
A quick look at the above graph reveals that Schneider National (SNDR), Werner Enterprises (WERN), and XPO Logistics (XPO) reported increased operating margins in the first quarter. Among these carriers, SNDR reported the highest expansion in operating margins.
Schneider National’s operating margin grew 1.6% in the first quarter to 5.9% from 4.3% in the same quarter last year. The rise in pricing offset the negative impact of increased purchase transport costs and salaries, wages, and benefits expenses.
Werner’s operating margin expanded 110 basis points to 6.2% in the first quarter from 5.2% in the corresponding quarter of 2017. While its revenues rose 12.3%, its operating expenses declined 11.0% in that quarter.
WERN’s gains on sales of assets reduced its other operating expenses in the first quarter. The company reported a depreciation increase in the first quarter of 2017, which also reduced that quarter’s operating margin.
XPO’s operating margin increased 0.4% to 3.4% in the first quarter from 2.9% in the same quarter of 2017. While its operating expenses grew 17.9%, its top-line growth was 18.4%. The company’s operating income in the Logistics segment jumped 44.0% YoY (year-over-year), boosting its margins in 2018.
Truckers with lower operating margins
JB Hunt Transport Services (JBHT) and Knight-Swift Transportation reported reduced operating margins in the first quarter. JB Hunt’s operating margin contracted 50 basis points to 8.7% in the first quarter, compared with 9.2% in the first quarter of 2017.
JB Hunt’s revenue growth was 19.6% YoY in the first quarter, and its operating expenses rose 20.3% YoY. Knight-Swift Transportation’s operating margin declined 1.0% to 7.4% in the first quarter from 8.4% a year ago.
In the next section, we’ll discuss the fuel prices and their impact on these companies’ earnings.