Restructuring costs push USA Truck to a $1.8 million first quarter loss

It was an expensive first quarter for Van Buren-based USA Truck, with $5.3 million in restructuring costs resulting in a net loss for the quarter of $1.807 million, a wide swing from the $1.635 million gain in the first quarter of 2015. Outside of the one-time cost hit, revenue during the quarter was down almost 17%.

However, the company would have posted a 15 cent per share income gain in the quarter without the restructuring charges, which would have beat the consensus estimate of 10 cents per share.

USA Truck, a truckload shipping and logistics company, ended 2015 on a high note. The company pulled together two consecutive years of growth, with full year 2015 net income reaching $11.069 million, up 76.1% compared to 2014 net income.

Total revenue in the first quarter of 2016 was $110.618 million, below the consensus estimate of $113.44 million, and down 16.75% compared to revenue in the first quarter of 2015.

“We have already made significant structural changes in our Trucking operations – which while absolutely necessary to drive long-term growth and shareholder value – are not without some level of short-term disruption and expense which we experienced during the first quarter of 2016,” USA Truck CEO Randy Rogers – who joined the company Jan. 14 – said in the earnings report.

Following are the four areas noted by the company resulting in the one-time expenses.
• Closing two maintenance facilities that were underutilized and inefficient. The company has closed four maintenance facilities, and has four remaining.

• Shut down unnecessary drop yards, closed the operations terminal in South Carolina, and removed unnecessary above ground fuel storage tanks.

• Closed two unproductive asset-light branch offices and restructured around fewer, more efficient regional centers. The company now has 10 asset-light regional offices.

• Cut staff jobs by approximately 10%.

The earnings report was also used to outline what Rogers called “four notable achievements.” The achievements were having the senior management team in place, posting the 15-cent per share earnings “in a difficult freight environment,” controlling fleet size by using more independent contractors, and reducing “network infrastructure” that will lower future expenses.

Company officials also rebranded their logistics and freight brokerage division from Strategic Capacity Solutions to USAT Logistics. The division, which has grown in recent years, generated 31.5% of the company’s total operating revenue in the first quarter.

“USAT Logistics is working hand in hand with our Trucking division to make better use of our owned assets to further improve utilization, reduce empty miles and provide a valuable outlet at times when discounted capacity is needed to further balance the Trucking network,” Rogers said in the earnings report. “At the same time, Trucking is now more closely connected to Logistics, taking full advantage of the flexibility Logistics provides with respect to providing expanded capacity and geographic diversity for our customer base.”

While the USA Truck earnings report said little about economic conditions faced in the quarter, the freight environment was mixed and ended the quarter on a down trend. The American Trucking Associations’ March tonnage index fell 4.5% after a 7.2% jump in February. Persistent high inventory levels among U.S. businesses have been an ongoing narrative.

“The freight economy continues to be mixed, with housing and consumer spending generally giving support to tonnage, while new fracking activity and factory output being drags. In addition, freight volumes are softer than the overall economy because of the current inventory overhang throughout the supply chain,” said Bob Costello, chief economist for the ATA.

A May 4 investor note from Little Rock-based Stephens Inc. said comments from trucking industry executives suggests “that the April demand environment has been disappointing.”

“Multiple TL/LTL (truckload and less-than-truckload) brokers and 3rd Party Logistics providers have reported a slower-than-expected finish to March from a demand perspective, with this trend continuing into April,” noted the Stephens report, which also mentioned high inventory levels as a drag on demand.

The higher inventory levels are broad and cover retail, manufacturing and other key sectors.

“Generally speaking, I would say inventories are elevated across the board. If you look at the US census data, manufacturing, retailer, and merchant wholesale inventory to sales ratios have been increasing since late 2014,” Stephens Analyst Brad Delco told Talk Business & Politics.

USA Truck shares (NASDAQ: USAK) closed Wednesday at $16.70 and were trading lower in Thursday morning trading. During the past 52 weeks the share price has ranged from a $25.99 high to an $11.58 low.