P.A.M. earnings decline 48% in 2016, 77% in fourth quarter

Earnings plummeted for P.A.M. Transportation Services as an abundance of capacity drove down rates while operating expenses increased because of the rising cost of employee health insurance and driver recruiting.

For fiscal 2016, the Tontitown-based carrier reported earnings fell 48% to $11.1 million, or $1.67 a share, from $21.43 million, or $2.93 a share, in 2015. In the fourth quarter that ended Dec. 31, net income declined 77% to $722,842, or 11 cents per share, down from $3.23 million, or 45 cents per share, in the same period in 2015.

The company, which reported earnings before the markets closed Tuesday (Feb. 7), missed analysts’ earnings estimates of $1.75 a share for fiscal 2016, and 17 cents per share for the fourth quarter, but beat revenue estimates of $430.2 million for the fiscal year and $105.7 million for the quarter.

Fiscal 2016 revenue, including fuel surcharges, rose 3% to $432.85 million, from $417.05 million in 2015, and fourth-quarter revenue increased 5% to $108.35 million, from $102.42 million in the same period in 2015.

“2016 was a very challenging year,” Daniel Cushman, president of P.A.M., said in the earnings report.

Driver recruiting and health insurance costs rose $7.3 million in fiscal 2016 and $1.6 million in the fourth-quarter and drove down earnings per share by 69 cents for the year and 19 cents for the quarter. The company wasn’t able to pass on these costs with rate increases, and this “played a large part in our miss of profitability goals for the year. We did, however, meet the low end of our revenue growth goal as our base trucking revenue grew by almost 9% this year compared to the previous year.”

The company has also seen success as a result of its expansion into the retail and manufacturing industries it entered in early 2016. P.A.M. participated in dedicated bids with the new customer base and secured business within these industries. It also was successful with these industries in the spot market in the fourth quarter and expects future growth in dedicated business from them.

P.A.M. also faced challenges in its Expedited Division, which is largely a “substitute line-haul provider for less-than-truckload companies who have been negatively impacted by the same overcapacity issues that we have experienced on the truckload side,” Cushman said. Demand in this division was reduced because the less-than-truckload carriers had enough capacity to haul the available freight. But the division saw growth in the number of retail customers, and this is expected to continue into 2017.

Fiscal 2016 revenue for its Logistics Division rose slightly to $44.41 million, up from $44.16 million in 2015, while fourth-quarter revenue fell 4% to $10.17 million, from $10.60 million in the same quarter in 2015. The company didn’t see the revenue or margins it expected from the division, reporting “marginal improvement in both areas,” Cushman said. The company looks to “be more aggressive in our approach during 2017 and feel(s) that we are well-positioned to take advantage of any tightening of capacity that may occur.”

Demand from the company’s automotive customers “remained healthy throughout 2016,” and the company looks to expand this business in 2017. About 45% of the company’s revenue can be attributed to the automotive industry, and nearly 40% of the business is cross-border with Mexico, according to Stifel transportation analyst John Larkin. The company’s Mexico Division “remains strong in both growth and margin,” Cushman said.

“We are also seeing new opportunities with new retail and manufacturing customers as well, most of which either have facilities or suppliers in Mexico.”

Cushman said 2016 was “a strong positioning year” as the company expanded divisions that performed the best, added shippers “with significant growth potential in new markets, reduced the average age of our tractor and trailer fleets to one of the newest in the industry” and “finished the year as one of the top four in the company’s history from an earnings per share standpoint.”

The company ended 2016 with an average of 1,334 company trucks, down from 1,415 in the previous year and had 557 owner-operator trucks as of the end of 2016, up from 414 in 2015. Trucks logged 237.26 million miles in fiscal 2016, up from 218.41 million miles in 2015.

Shares of P.A.M. (NASDAQ: PTSI) closed Tuesday (Feb. 7) at $21.16, down $2.84 or 11.83%. In the past 52 weeks, the stock has traded between $32.23 and $14.75.

INDUSTRY OUTLOOK
In January, Larkin shifted the carrier’s stock rating to hold, from buy, and lowered its 12-month target price to $26, from $29. Since before the November election, “the average stock under over coverage universe has seen a stock price increase of nearly 13%. While our coverage universe has moved (again, 13% (P.A.M.) has moved a full 39%, as the market is fully pricing in many expected benefits from future growth.”

P.A.M. was one of three trucking company stocks that analysts downgraded last month. Larkin was seeing proposed benefits of the Trump administration, such as a proposed infrastructure bill, being accounted for in stock prices before the benefits had been approved. Another concern for P.A.M. regarded the amount of business it does with the automotive industry and its cross-border business with Mexico.

Spot truckload demand is faring better than the “seasonal trend in January,” according to transportation analysts Benjamin Hartford and Zax Rosenberg, both of Baird. Carriers reported “weakness to begin the month, but improvement toward the end of the month.”

Carriers and shippers are optimistic about the economic outlook, and carriers who previously reported fourth-quarter earnings expected pricing to rise in “low-single-digit growth year-over-year.” However, analysts expected fourth-quarter pricing to fall 2% to 3%, compared to the same quarter in 2015.

“Core truckload pricing growth remains pressured, but core pricing growth is expected to inflect in 2017.”