Heartland's Clean Balance Sheet Could Bring Acquisitions Back Into Play

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Truckload (TL) carrier Heartland Express, Inc. (NASDAQ: HTLD) announced second quarter 2019 earnings of $0.27 per share, which were $0.02 per share ahead of analysts’ estimates and $0.05 higher than the second quarter 2018 result.

The North Liberty, Iowa-based company reported revenue of $142.1 million, 8.8 percent lower year-over-year. Excluding the impact of fuel surcharges, revenue declined 7 percent year-over-year as miles driven declined.  

“Our operating results were strong in terms of profit and overall operating efficiency despite general freight environment challenges during the quarter. We were also able to deliver sequential growth in our top line revenues during the second quarter as compared to the first quarter of 2019. We accomplished this by staying disciplined on freight rates, collaborating with strategic and long-term focused customers, and continued to improve on our driver recruiting and retention efforts,” said Heartland’s Chief Executive Officer Michael Gerdin in the press release.

The company reported operating income of $29 million, a 31 percent year-over-year increase. HTLD’s operating ratio (OR) was 79.6 percent, 620 basis points better compared with the second quarter of 2018. HTLD’s adjusted OR was 76.6 percent excluding the impact of fuel revenue and expenses, which was 680 basis points better year-over-year.

HTLD Key Performance Indicators

HTLD doesn’t provide any operating metrics for its truck fleet. The only commentary provided on rates in the release was that the company remained “disciplined.” That said, HTLD likely benefited from improved contractual pricing on a year-over-year basis. Earlier this week, P.A.M. Transportation (NASDAQ: PTSI) reported a 9.6 percent increase in revenue per total mile and J.B. Hunt‘s (NASDAQ: JBHT) TL division posted a 4 percent increase in rate per loaded mile.

Larger carriers generate the bulk of their revenue from one-year contracts. As such, these carriers benefited in second quarter 2019 from a favorable rate negotiation environment in 2018 when capacity was much tighter and spot rates soared. That said, contractual price negotiations get tougher in the back-half of 2019 as the comparisons are difficult from prior periods and the spot market is currently suffering from a capacity overhang.

HTLD’s operating income also benefited from a $2.2 million increase in gains on equipment sales (the gain realized when trading in trucks and trailers). The increase had a $0.025 per share positive impact on the quarter compared to last year.

Heartland ended the quarter with $205.6 million in cash on the balance sheet, its highest level since the third quarter of 2012, and no debt. The Company plans to spend $80 to $100 million in net capital expenditures in 2019 as it refreshes its tractor and trailer fleet and terminals. The average age of its tractor fleet was 1.5 years at the end of the quarter, which was in-line with the prior-year period. The average age of the trailer fleet is down to 3.2 years from 4.6 years at the end of the second quarter of 2018. 

HTLD has an open stock repurchase authorization allowing it to repurchase an additional 6.9 million shares. No shares have been repurchased during the first half of 2019. Additionally, the company has $100 million in borrowing capacity with the availability of another $100 million.

The clean balance sheet and deteriorating fundamentals in the TL space that could force some carriers to look for the exit begs the question, ‘will we see Heartland become acquisitive again?’ In 2017, Heartland acquired Interstate Distributor, which had $325 million in revenue in 2016 and in 2013 it added Gordon Trucking to its portfolio in a $300 million deal.

“The overall freight environment could produce periods of both ups and downs for the remainder of the year, but I believe that our organization is well-positioned for whatever opportunities or challenges lie before us. I am pleased with our drivers, our team that supports our drivers, and our financial results for the second quarter of 2019,” said Gerdin.

HTLD doesn’t host an earnings call with investors and the media.

HTLD Stock Chart – Seeking Alpha

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