P.A.M. sets operating records as profit declines from 2017 results boosted by tax reform

Tontitown-based carrier P.A.M. Transportation Services Inc. said earnings fell from 2017 results that included the effects of tax reform, but the carrier set operating records for best quarter and year in the fourth quarter of 2018 and for the year as a result of strong freight demand and expanded business opportunities.

P.A.M. on Wednesday (Jan. 16) reported fourth-quarter net income fell 80.8% to $6.07 million, or $1.01 per share, from $31.561 million, or $5.00 per share. The carrier’s 2018 net income declined 38.3% to $23.994 million, or $3.90 per share, from $38.899 million, or $6.08 per share, in 2017. Revenue rose 24.6% to $138.174 million in the fourth quarter of 2018, from $110.889 million in the same period in 2017. Its 2018 revenue rose 21.8% to $533.261 million, from $437.838 million in 2017.

The 2017 results included tax reform benefits, and 2018 results were negatively impacted by 70 cents per share in the fourth quarter and 71 cents per share for the year because of non-cash, non-operating losses related to investments in marketable equity securities. The non-cash charge was recognized as a result of new accounting requirements that became effective in 2018 and required changes in the fair value of equity investments flow through earnings.

In its logistics operations, or brokerage division, revenue rose 47.8% to $22.54 million in the fourth quarter, and it increased by 74.7% to $89.286 million for 2018. Operating ratio, or the company’s expenses as a percentage of revenue, improved 98 basis points to 93.9% in the fourth quarter, and it improved 162 basis points to 94.41% for 2018.

President Daniel Cushman was pleased with the results, noting the new operating records for best quarter and best year in the company’s history. He explained the challenges of 2018, including rising expenses related to driver pay increases and that customer rate increases were not set to go into effect until the end of the year. The result was the company didn’t start to see the improvements it expected until the second half of 2018, and since then, it’s had seven consecutive months of record operating results, Cushman said.

Some of the issues the company faced in the fourth quarter were normal seasonal issues, including auto plant downtimes that were scheduled and customer holiday schedules that reduce the number of business work days. “These hurdles often make the fourth quarter more difficult to achieve sequential growth,” Cushman said. “However, in 2018 we overcame these headwinds and surpassed third quarter operating results, which had been our previous best quarter on record. Each month of the fourth quarter individually broke previous operating records for that respective month, so we are encouraged by the continued strong demand through year-end.”

While strong freight demand played a part in the company’s success for 2018, Cushman attributed its commitment to expand its business with customers as another factor after developing new customer relationships when the market was weak in 2016 and early 2017. The company participated in peak business opportunities in the fourth quarter of 2017, and business in the peak period expanded in the fourth quarter of 2018, he said. Typical fourth-quarter issues as a result of auto plant downtimes were overcome by the new business opportunities.

The carrier’s truck fleet size increased by nearly 20% in 2018 as competition for drivers continued to rise, Cushman said. The carrier has been able to accomplish this because of freight rate increases, supporting driver pay increases. The carrier also was able to offer its drivers with predictable, recurring home time because of increased density in key shipping lanes and the recurring nature of its dedicated business. Cushman also gave credit to the carrier’s recruiting team in marketing its diverse driving jobs.

Along with the investments into its fleet in 2018, the company also expanded its corporate headquarters and purchased real estate in the Laredo-Nuevo Laredo metro area, which spans Texas and Mexico. Cushman said the fleet investments allow the carrier to maintain one of the newest fleets of trucks and trailers and to support growth in cross-border and brokerage operations. The expansion of the company’s corporate headquarters includes the purchase of neighboring properties, and should allow for up to 200% growth in its brokerage division, which had record revenues and operating profits in 2018, including a 146% rise in operating income.

“We look forward to the opportunities which we believe 2019 holds, and believe we are well positioned for success based on growth and cost control initiatives that we continue to pursue,” Cushman said. “We do not expect the driver market to suddenly correct itself, so we believe that the driver shortage will continue to limit the industry’s ability to add truck capacity in the near term.”

The company ended the fourth quarter with 1,399 company trucks and 630 owner-operator trucks, up 22.3% and 7.1%, respectively. Revenue per truck per day rose 1.2% to $736, and operating ratio improved 1,085 basis points to 85.86% in the period.

Shares of P.A.M. (NASDAQ: PTSI) were trading Wednesday afternoon at $51.90, down 90 cents or 1.7%. In the past 52 weeks, the stock has ranged between $70 and $31.81.