P.A.M. profits rise 4,266% in fourth quarter, up 250% for 2017

P.A.M. Transportation Services saw increased freight demand in the fourth quarter as capacity tightened and rates rose, leading revenue and earnings to rise. The Tontitown-based carrier also benefited from the recent tax reform, boosting 2017 and fourth-quarter profit.

Late Thursday afternoon (Feb. 15), the carrier reported 2017 net income increased 250.4% to $38.9 million, or $6.08 per share, from $11.101 million, or $1.67 per share, in 2016. Earnings in the fourth quarter that ended Dec. 31 increased 4,266.3% to $31.561 million, or $5 per share, from $722,842, or 11 cents per share.

Excluding the benefit from tax reform, earnings per share was $1.43 in 2017 and 28 cents in the fourth quarter. Income before taxes declined 17.7% to $14.631 million in 2017, from 2016, and it rose 168.6% to $2.666 million in the fourth quarter, from the same period in 2016. The company had a $24.268 million income tax benefit for 2017, compared to a $6.671 million income tax expense in 2016, and a $28.895 million benefit from taxes in the fourth quarter, compared to a $269,710 tax expense in the same period in 2016.

Revenue increased 1.2% to $437.838 million in 2017, from 2016. Fourth-quarter revenue rose 2.3% to $110.889 million. In the company’s truckload segment, revenue per truck per day fell 1.4% to $695 in 2017, from 2016. Total loads increased 4.9% to 339,182, while total miles fell 3.3% to 229.392 million.

In the fourth-quarter, revenue per truck per day was flat at $727, from the same period in 2016. Total loads increased 10.4% to 86,094, and total miles declined 7.4% to 54.145 million. The number of trucks the company had fell 10.9% to 1,144 trucks in the fourth quarter. The number of owner-operator trucks was flat at 588, from the same period in 2016.

In the company’s logistics segment, revenue rose 15.1% to $51.098 million in 2017. In the fourth quarter, revenue increased 49.8% to $15.251 million.

President Daniel Cushman expected freight demand, tightening capacity and rates to continue to increase throughout 2018. This should allow the company to increase rates with existing customers that were previously less than what the company considered acceptable levels and to add new business at better rates than the company has seen in the past several years.

“We did not finish 2017 as strong as we would have liked as weaker December results offset significantly improved results achieved during October and November,” Cushman said. “December was particularly difficult due to automotive plant shutdowns and shortfalls in peak freight commitments as some customers fell considerably short of hitting their capacity needs targets. This shortfall left us scrambling to find acceptable replacement freight for that reserved capacity and while freight was plentiful, with such short notice it was difficult to find destinations and rates which were both desirable and network friendly.”

PAY INCREASES
The improving freight rates allowed the company to offer drivers a pay increase.

“Late in the fourth quarter, we gave a pay increase to our drivers which we believe was an absolute necessity to remain competitive in the current driver market,” Cushman said. “Historically, our driver model has been in a large part, to hire and train new student drivers. This model served us well for many years as the pipeline of new student drivers helped to keep our trucks manned. In the past, some of our larger competitors would not hire a driver with less than one year of experience, which meant competition for our new drivers was somewhat limited.”

As the driver shortage worsened, competitors decreased the experience requirement to nine months and to six months. Now, many companies have a three-month experience requirement.

“This has substantially increased competition for our new drivers and puts a tremendous amount of pressure on our driver retention success rate at the three month mark,” Cushman said. “Our retention levels after the first three months had started to deteriorate prior to this pay increase, but since implementation, we have seen positive trends in both recruitment and retention of both student and experienced drivers.”

RATE CHALLENGES
In 2017, the company was challenged by customers asking for rate decreases. If the company and the customer couldn’t come to an agreement, the customer would find a lower bidder to haul its freight. As a result, the company lost freight to the low bidders.

“Replacement freight was often not available, or had to be discounted to win, or was turned down due to unrealistically low rates, which resulted in a reduction in our fleet size as we adjusted to our volume of profitable freight,” Cushman said. “For 2018, our equipment purchase plans include restoring this lost ground plus adding capacity for additional growth, and is evidenced by our recent order of 725 new trucks and 1,000 new trailers. We expect to finish 2018 with a company-owned truck fleet in excess of 20% larger from where we finished 2017.”

Also, the company has been awarded multiple dedicated contracts starting in the first quarter of 2018 at rates to improve the company’s margin and to attract drivers who want stable lanes, Cushman said. The rates agreed to are not as high as existing spot rates and might limit the company’s ability to take advantage of those rates, but the contracts are long-term and consistent, which will provide the opportunity for improved truck use, driver retention and sustainable growth.

Shares of P.A.M. (NASDAQ: PTSI) closed at $35.97, down $1.83, or 4.84%, on Thursday. In the past 52 weeks, shares have ranged between $43.20 and $14.50.

2018 EXPECTATIONS
In a quarterly rate index update, Brad Delco, trucking/transportation analyst for Little Rock-based Stephens Inc., expected truckload rates to rise 6.3% in 2018.

“We believe the truckload environment remains tight with expectations for a strong 2018 contractual bid season as supply/demand dynamics remain favorable for the (truckload) carriers.”

Carriers are expecting rates to rise in the upper-single-digits for the year as a result of the capacity constraints.

The Stephens Truckload rate index rose 7.8% in the fourth quarter of 2017, compared to the same quarter in 2016. This marked the third consecutive quarter the rate increased and the largest year-over-year increase in the history of the index, Delco said.

Since 2008, the average rate change, between the fourth and first quarters, has been a decline of 2.3%. But Delco expects the first quarter of 2018 to be above average as well as the remainder of 2018.