P.A.M. net income rises 353%, revenue up 24.5% in second quarter

by Jeff Della Rosa (JDellaRosa@nwabj.com) 294 views 

P.A.M. Transportation headquarters in Tontitown, Ark.

P.A.M. Transportation Services profit increased 353.1% in the second quarter, and the stock price soared to a 52-week high as the Tontitown-based carrier strives to match 2015 earnings levels.

On Wednesday (July 25), the company reported earnings for the period that ended June 30 were $7.289 million, or $1.17 per share, up from $1.609 million, or 25 cents per share, in the same period in 2017. Revenue rose 24.5% to $135.303 million.

Through the first six months of 2018, earnings have risen 122.9% to $8.686 million, or $1.39 per share, from $3.892 million, or 61 cents per share, in the same period in 2017. Revenue has risen 16.8% to $254.761 million.

Revenue per mile increased 17 cents to $1.56 per mile in the second quarter, from the same period in 2017. Total loads increased 22.2% to 103,511. Average number of company trucks increased 8.6% to 1,324, and average number of owner operator trucks fell to 18.3% to 550.

In the logistics segment, second-quarter revenue rose 107.6% to $23.75 million. Operating ratio, or expenses as a percentage of revenue, declined to 94.39%, from 97.38%. Through the first six months of the year, revenue in the segment increased 95.8% to $43.33 million.

P.A.M. President Daniel Cushman said the company set goals to return to record earnings levels of 2015. While second-quarter earnings were better than the same periods in 2017 and 2016, they didn’t exceed 2015 results. One difference between the same periods in 2018 and 2015 was the company received nearly $1.6 million more in pre-tax gains on the sales of used equipment in 2015, and this was the primary factor preventing the company from matching 2015 earnings levels. Since 2015, the company has decreased equipment sales to avoid the used equipment market, which has been stagnant but improving. As a result, the company doesn’t expect gains from equipment sales in 2018.

In June, operating income rose to a record high, Cushman said. Also that month, the American Trucking Associations’ advanced seasonally-adjusted For-Hire Truck Tonnage Index rose 7.8%, from June 2017.

“In the second quarter, we saw the tonnage index jump 1.8% from the previous quarter and 8.4% from a year earlier,” said ATA Chief Economist Bob Costello. “This robust growth fits with what is likely to be a very strong GDP reading for the second quarter. I expect the growth in tonnage to moderate, but remain at very high levels in the months ahead.”

In the latter part of 2017 and early 2018, P.A.M. reported rates improved, but this only accounted for 45% of its business. The carrier continued to honor contract rates that didn’t expire until the end of June and July. As the rates expired, the carrier saw financial results improve throughout the second quarter. The company will continue to address rates, pushing them higher, throughout 2018 as it works to control costs.

“We are already experiencing attempts from our suppliers to obtain financial relief as a result of our improved results, and when combined with other rising industry costs, such as driver pay, insurance and equipment costs, it is paramount that we continue to have success in raising rates to stay ahead of these cost increases,” Cushman said. “Driver recruiting and retention costs will continue to rise as the competitiveness in the industry for qualified drivers has intensified to unprecedented levels.”

In late 2017, the carrier increased driver pay, and this has impacted financial results in 2018 and is expected to continue to do so. As a result of the company’s efforts, it has increased its manned truck count by 7%, since the previous quarter. Driver costs look to continue to through 2018 and longer term.

In a recent carrier survey, carriers expect driver pay and sign-on bonuses to continue to increase along with driver turnover, according to Tulsa-based background screening firm Driver iQ. “Motor carrier executives continue to play three-dimensional chess games when it comes to recruiting,” said Lana Batts, co-president of Driver iQ.

“Managing within the context of an expanding economy, recruiters needs to find drivers that are already working; attract them with wages, bonuses and benefits; and yet still grow and maintain profitability.”

In P.A.M.’s Mexico business segment, second-quarter revenue rose nearly 30%, said Cushman, adding that it is one of the company’s “most profitable divisions.” Revenue in the logistics segment more than doubled, and it has started to achieve desired levels of growth and profitability.

Capacity constraints in the industry have led to more opportunities for dedicated freight, and this freight has improved profitability for the company and earnings and quality of life for drivers, according to the company.

“Our business mix is now comprised of over 50% dedicated or quasi-dedicated business, which we believe provides our driving professionals with some of the best, most consistent home time opportunities in the industry,” Cushman said.

Throughout the remainder of the year, the company plans to expand its fleet by 20%. Growth was limited in the second quarter as truck manufacturers had delivery delays. But truck delivery times have improved, and the carrier expects to be on schedule soon.

In June, North American orders of Class 8 trucks, the largest truck class, were 42,224, marking the fourth time in six months in which orders were more than 40,000.

“North American Class 8 net orders continue to materially outpace the industry’s ability to sate demand, and June’s performance is more impressive in that it is typically one of the weakest months of the year for orders,” said Kenny Vieth, president and senior analyst for ACT Research. “When seasonally adjusted, June’s intake rises to 48,264 units. Seasonally adjusted, we have to track back to March 2006 to find the only month in history that surpasses June’s volume.”

As of early Wednesday afternoon, shares of P.A.M. (NASDAQ: PTSI) were trading at $52.76, up $8.65 or 19.61%, after rising to a 52-week high of $57.25. In the past 52 weeks, the stock has ranged between $57.25 and $16.34.

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