P.A.M. profits fall 39.2%, revenue up 9.2% in first quarter

P.A.M. Transportation Services earnings declined 39.2% in the first quarter of 2018 as winter weather decreased equipment use and negatively impacted fuel and maintenance expenses, insurance claims and revenue. However, a strong freight market has led customers to increase rates for the Tontitown-based carrier.

After the markets opened Monday (April 30), the company reported net income for the quarter ending March 31 fell to $1.387 million, or 22 cents per share, from $2.283 million, or 36 cents per share, in the same period in 2017. Revenue increased 9.2% to $119.458 million, from $109.405 million.

Excluding the impact of gains or losses from the company’s investments into equity stocks, earnings rose 93.9% to $2.305 million, or 37 cents per share, in the first quarter of 2018, from $1.189 million, or 19 cents per share, in the same period in 2017.

Fuel surcharge revenue increased 28.8% to $20.354 million in the first quarter of 2018, as fuel prices were higher from the same period in 2017. As of April 23, the U.S. price for a gallon of diesel has risen 54 cents to $3.13, from the same time a year ago, according to the U.S. Energy Information Administration. Excluding fuel surcharges, P.A.M.’s revenue rose 5.9% to $99.104 million.

The carrier’s revenue per mile rose 5.1% to $1.45, from the same period in 2017. Total loads increased 13.4% to 94,975, and total miles trucks traveled in the quarter fell 7.6% to 55.566 million. Empty miles factor, or miles trucks traveled without loads, improved 38 basis points to 6.43%. Operating ratio, or operating expenses as a percentage of revenue, improved 87 basis points to 96.37%.

In its logistics segment, revenue rose 73.9% to $18.580 million. Operating ratio improved more than 100 basis points to 95.5%.

President Daniel Cushman was pleased with operating results in the first quarter as the company moves toward reaching its goal of record earnings.

HITS TO EARNINGS
Along with the winter weather impacts, several of the company’s customers close on Good Friday, which was in the first quarter in 2018 but in the second quarter in 2017, Cushman said.

“Also, in late December 2017, we gave a significant pay increase to company drivers, which increased driver per mile costs by an average of approximately 13%. These company driver pay raises were followed shortly thereafter by an increase in rates paid to certain owner operators within our network. These raises were long overdue, and we believe they are necessary to experience the level of growth we anticipate for the year.”

The strong freight market in the first quarter allowed for the company to receive customer rate increases, Cushman said. Over most of the past two years, customers pushed for lower rates as the company’s costs were rising. Freight demand started to shift in the company’s favor in the fourth quarter of 2017 and improved throughout the first quarter of 2018.

About 55% of the company’s customer base is a mix of automotive manufacturers and their suppliers, Cushman said. P.A.M. continued to meet commitments for those companies at established contract rates and passed up on other opportunities that would allow the company to take advantage of the existing spot market as capacity tightened.

In March, van spot rates increased 32%, from March 2017, according to DAT Solutions. In 2017, General Motors Co., Fiat Chrysler Automobiles and Ford Motor Co. accounted for 18%, 10% and 9%, respectively, of P.A.M.’s revenue, according to its annual report filed March 9 with the U.S. Securities and Exchange Commission. Including the transportation services it provides to the suppliers of car manufacturers, 46% of P.A.M.’s revenue was attributed to the automobile industry in 2017.

SPOT MARKET STRENGTH
Cushman said taking advantage of existing spot market rates would have improved results for the quarter, but the company didn’t want to risk disrupting its existing network as it wouldn’t have been in the best interests of customers or the company. Through the first quarter, the company has addressed rate increases with about 45% of its business and plans to address the remainder as the contracts allow.

“The customer rate increases achieved during the first quarter of this year were largely offset by the cost increases associated with the driver pay increases,” Cushman said. “We have seen a positive effect on both driver hiring and driver retention during the first quarter as a result of these increased pay rates and have experienced a 10% increase in company truck growth since implementation. We believe that we are well positioned to grow our driver fleet due to a more competitive compensation package, having one of the newest fleets in the industry and the availability of high utilization network lanes we can offer. We plan to leverage driver availability and planned fleet growth to provide additional capacity and capitalize on current market conditions.”

As of Dec. 31, the carrier had 1,721 company trucks, and 5,795 trailers, with an average age of 1.49 years and 3.38 years, respectively. By comparison, Lowell-based carrier J.B. Hunt Transport Services had 14,191 company trucks, with an average age of 2.9 years, as of Dec. 31, according to its annual report. Average age for its containers and trailers was 6.2 and 7.1 years, respectively.

P.A.M. also provides transportation service to Mexico, and demand for the service has grown, Cushman said. Nearly 41% of the company’s revenue was attributed to shipments to or from Mexico or Canada, according to its annual report.

Enforcement of the electronic logging device mandate is expected to have positive impacts on demand for the carrier’s services through this year, Cushman said.

“In light of current market trends, our position in the market, and our diversity of services, we are very optimistic about the remainder of 2018.”

Shares of P.A.M. (NASDAQ: PTSI) were trading at $35.22, up 22 cents or 0.63% by midafternoon Monday (April 30). In the past 52 weeks, the stock has ranged between $43.20 and $15.72.

On April 25, shareholders voted to reelect the eight existing directors and reappoint its accountant, Grant Thornton LLP, according to an SEC filing on April 30. Following were reelected: Frederick Calderone, Cushman, Scott Davis, Norman Harned, Franklin McLarty, Manuel Moroun, chairman Matthew Moroun and Daniel Sullivan. Matthew Moroun and Manuel Moroun own more than 60% of the company’s shares.