Werner Enterprises says end of downcycle getting closer

Werner Enterprises said Tuesday the end of the downcycle appears to be getting closer. With a first quarter marked by inclement weather and higher insurance expenses in the rearview, it expects normal seasonal trends to take hold the rest of the year.

Werner (NASDAQ: WERN) reported first-quarter net income of $6.3 million compared to $35.2 million in the same period of 2023. When adjusted for items expected to not recur or items considered not part of normal operating activities (acquisition-related expenses, costs from an insurance claim that has been appealed, changes to earnouts and changes in the value of equity investments) the company reported earnings per share of 14 cents. The adjusted result was 13 below the consensus estimate and 46 cents lower year over year (y/y).

A decline in used equipment values pushed gains on sales 80% lower y/y to just 4 cents per share (an 18-cent headwind compared to the year-ago quarter). Unit sales of tractors were down 18% y/y but trailers sold increased 78%. Werner lowered its outlook for gains on equipment sales to a range of $10 million to $20 million from the prior range of $10 million to $30 million.

Table: Werner’s key performance indicators

Total revenue from truckload services declined 6% y/y to $551 million. Dedicated revenue declined 3% y/y as trucks in service fell 4%, which was partially offset by a 1% increase in revenue per truck per week. The company reiterated full-year 2024 guidance of flat to up 3% y/y for revenue per truck per week.

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The one-way TL segment reported an 8% y/y decline in revenue. Average trucks in service fell 13% but utilization (miles per truck per week) improved 11%. Revenue per total mile was down 5% in the quarter. The company reiterated the first-half 2024 outlook for one-way revenue per total mile at down 6% to down 3% y/y. The outlook calls for “flat to slightly higher” spot rates in the second quarter, with further improvement in the second half.

The total TL truck count was down 2% y/y in the first quarter, prompting a guidance change from down 3% to flat y/y in 2024 to down between 6% and 3% y/y. The company has meaningfully lowered its one-way truck count and is seeing some headwinds to unit counts within dedicated accounts. However, it said all the discount retail customers it serves in a dedicated configuration have increased their truck counts with Werner this year.

The TL segment reported a 95.3% adjusted operating ratio (96.2% unadjusted), which was 600 basis points worse y/y and 280 bps worse than the fourth quarter. Adjusted operating income was down 58% y/y, with lower gains on sale accounting for nearly half of the decline.

The company has identified another $40 million in consolidated cost savings for 2024, $12 million of which has already been achieved. For all of 2023 and 2024, the company projects total savings of $80 million to $90 million, 60% of which it views as “structural and sustainable.”

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The TL OR improved in each month of the quarter and management expects continued improvement as it has emerged from the seasonally weakest quarter of the year. A long-term target for the TL operating margin (inverse of operating ratio) remains intact at 12% to 17% but management no longer expects to achieve that run rate by the end of this year.

Werner’s logistics unit recorded a $2.3 million operating loss in the quarter ($1.2 million on an adjusted basis). Revenue was down 12% y/y to $203 million with gross margin falling 280 bps to 14.8%. Brokerage operating margins are expected to improve later in the year given the cost savings initiatives.

Shares of WERN moved 2.3% lower in after-hours trading Tuesday.

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