P.A.M. Transportation income falls 43% from higher driver costs, revenue improves

Tontitown-based P.A.M. Transportation Services posted record total quarterly revenue of $111.515 million, up 3.22% from the $108.033 million reported a year ago. However, net income was down 43%.

In the earnings report released Wednesday (July 27), the company attributed some of the lower earnings on rising driver recruitment and training costs.

Net income for the second quarter ending June 30 was $3.992 million or 61 cents per share. Earnings are down from the $7.039 million or 94 cents reported a year ago. Through the first half of fiscal 2016 P.A.M.’s net income totaled $6.926 million or earnings per share of $1.01, compared to $12.408 million or $1.66 per share last year.

No Wall Street analyst covers the thinly traded stock. But logistics economists have forecast a challenging year for many carriers given high retail inventory levels and a sluggish manufacturing segment.

“During the second quarter of 2016, we continued to experience some weakness in the market for our services but were able to continue our positive trend of revenue growth. Our base revenue growth on a year-to-date basis is approximately 11% for our trucking division, resulting primarily from an increase in our overall fleet size and to growth in our Dedicated and Mexico divisions,” P.A.M. President Daniel Cushman said in the report.

He said fuel surcharge revenues continue to be lower on a year-over-year basis as fuel prices remained lower in 2016. He said the company experienced lower operating margins because of the increase in normal operating costs which could not be passed on to customers. He said the company continues to expand into new markets in order to diversify and expand its service profile.

The company disclosed in the first quarter plans to enhance its driver recruiting and retention programs and the potential impact that would have on profits this year. In the second quarter Cushman said driver-related costs rose $1 million over the same quarter last year. Through the first half of 2016 the company has spent $2.5 million more in driver-related costs.

“While the driver costs were an expected increase for 2016, we decided to push ahead with our growth objectives in order to obtain market share in certain markets (manufacturing and retail) where we have not historically had a strong presence. We have seen tremendous downward rate pressure in the marketplace, which has been very challenging but has also presented us with new opportunities,” he noted in the release.

Cushman said the automotive sector, where P.A.M. has a significant presence, shippers continue to test the market for lower rates. The entrance of new carriers in the sector has also compressed rates for carriers serving the automotive industry. He said the same is true in retail and manufacturing, where P.A.M. does not have a strong presence. Given that customers are testing lower rates, Cushman said P.A.M. jumped into these areas in hopes of gaining some market share.

“The entry costs would come at a higher price due to increased driver costs; however, we wanted to maintain our current customer base and build around that base with more capacity. We believe this positions us for exponential improvement when the general freight market rebounds and capacity begins to tighten, but also provides us with the flexibility to downsize quickly should a freight recovery take longer than anticipated,” Cushman said.

He explained that this approach has allowed the company to grow revenues and expand its market representation. He said there are continued challenges with increased employee health care costs. Health care costs are $1.5 million higher through the first half of 2016, than in the same period last year.

As P.A.M continues to sell off older truck inventory, Cushman said a glut of units has depressed prices which also hurt the resale value of certain assets the company disposed of in the quarter.

The thinly traded dry van carrier said it repurchased 2.3 million shares of outstanding stock through its modified Dutch auction tender offer which was initiated earlier this year. Approximately 330,000 shares remain available for purchase under the previously authorized stock repurchase program.

Shares of P.A.M. Transportation Services (NASDAQ: PTSI) were trading at $19.53 on Wednesday following the earnings release. Shares were up 55 cents or $2.9% over the previous day. Over the past 52 weeks the share price of P.A.M. Transportation has ranged from $14.75 to $58.31.