P.A.M. first quarter earnings fall 22%, revenue rises 5%

Earnings for P.A.M. Transportation Services declined 22% in the first quarter as it reduced some costs but has yet to secure rate increases.

In the quarter that ended March 31, the Tontitown-based carrier reported earnings fell to $2.28 million, or 36 cents per share, from $2.93 million, or 41 cents per share, in the same period last year. Revenue rose 5% to $109.40 million. Earnings beat the estimate of 16 cents per share, according to the analyst that follows P.A.M. Revenue also beat the estimate of $92.8 million.

“The first quarter of 2017 was somewhat of a continuation of the trends we experienced in 2016, where we saw higher costs and downward rate pressures from customers,” President Daniel Cushman said in the earnings statement. “In fact, the largest variance in our results during the first quarter of 2017, compared to the first quarter of 2016, has been the variance in our rates charged to customers.”

The company’s average rate per mile has fallen “to a point well below that of last year at this time,” Cushman said.

Some customers are concerned about capacity tightening as a result of the electronic logging device (ELD) mandate, which is set to go into effect in December, and are looking to lock in existing low rates for multiple years. P.A.M., which is compliant with the ELD mandate, expects capacity will start tightening closer to when the mandate goes into effect.

However, other customers don’t think the regulations will impact “their capacity needs as their current carrier base is already compliant with the regulations,” Cushman said. “These customers appear to be willing to accept the exposure that their current carrier base could begin to transfer capacity to other customers who were previously using non-compliant carriers, and now need a compliant carrier base.” P.A.M. expects “better margin opportunities as non-compliant carriers exit the marketplace and capacity becomes less available.”

Another impact on the carrier’s earnings in the quarter has been the decline in pre-tax gains on the sale of used equipment. Pre-tax gains in the first quarter of 2016 were $1.4 million, compared to nearly no gain in the same period in 2017.

“The used equipment market continues to be soft and due to our equipment fleet being one of the newest in the industry, we continued to use our equipment in our operations instead of selling that equipment for little to no gain,” Cushman said.

But the company sold some investments “in marketable equity securities,” leading to “non-operating pre-tax gains of $1.8 million, which compares to a small non-operating pre-tax loss on marketable equity security sales during last year’s first quarter.”

The company’s strategy for the remainder of the year includes reducing costs and find “new business opportunities at higher rates than some of our existing customer’s rates,” Cushman said. “We have already succeeded in replacing some freight in that endeavor, but it will take time to grow the business with those higher margin customers in order to offset the rate decreases experienced over the last year.”

Revenue per mile fell to $1.38, from $1.43. Total miles increased 4% to 60.12 million, and loads rose 5% to 83,751. Total revenue for the company’s logistics or brokerage segment declined 7% to $10.68 million, from $11.54 million.

Shares of P.A.M. (NASDAQ: PTSI) closed at $16.30, down 8 cents or 0.49% on Thursday (April 27). In the past 52 weeks, the stock has traded between $28.43 and $14.50.

INDUSTRY TRENDS
First quarter volumes “were slightly weaker than expected,” according to transportation and logistics analysts Benjamin Hartford and Zax Rosenberg, both of Baird. “Core contractual truckload pricing growth remains muted but better than 2016’s 1-3% (year-over-year) declines.”

Spot market trends told a slightly different story in March. Nationwide, dry-van spot rates rose 7.2% in March, from the same month in 2016, according to DAT Solutions. Also, spot market capacity rose 1.7%, and spot load increased 92%.

“For van rates, rising lanes continue to outnumber falling lanes on a week-to-week basis, but it’s been a slow, long-term trend,” according to DAT. “Trucks are still relatively easy to find in some parts of the country, which has put a speed limiter on rising rates.”

In March, freight shipments rose 0.9%, and expenditures on freight increased 3%, according to the Cass Freight Index. For the second quarter, carriers expect “typical seasonal trends to continue through May (and) June,” according to Hartford and Rosenberg.