Heartland Express reported a net loss for the second quarter on Tuesday, pointing to weak freight demand, excess capacity and higher expenses as the culprits.
The North Liberty, Iowa-based truckload carrier reported a $3.5 million net loss, or 4 cents per share. That was slightly better than the consensus estimate for a 5-cent-per-share loss but well off earnings per share of 10 cents in the 2023 second quarter. Lower gains on the sale of used equipment presented a 7-cent hurdle (assuming a normalized tax rate) versus the year-ago quarter.
This was Heartland’s (NASDAQ: HTLD) fourth consecutive quarterly net loss when excluding one-time gains from the sale of real estate. It booked $25.6 million in gains from the sale of three terminals in the fourth quarter, which are viewed as nonrecurring benefits.
“Our consolidated operating results for the three and six months ended June 30, 2024, reflect the combination of an extended and significant period of weak freight demand, driven by excess capacity in the industry and ongoing operating cost inflation,” CEO Mike Gerdin said in a news release.
Table: Heartland’s key performance indicators
The company continues to right-size costs following the acquisitions of Smith Transport and Contract Freighters Inc. Those deals were inked two years ago, at the onset of the freight recession. Heartland said it is still working to consolidate information systems at the fleets and that it expects to further reduce costs at those entities.
Heartland reported $275 million in revenue during the second quarter, a 10% year-over-year decline. The company does not provide operating metrics for utilization and pricing.
Adjusted operating income of $1.5 million was $16 million lower y/y but a nearly $15 million swing from the first quarter. The adjusted number excludes acquisition-related amortization expenses. Heartland’s adjusted operating ratio (expenses as a percentage of revenue) was 99.4% in the quarter, 600 basis points worse y/y but well below the nearly 106% level the carrier operated at in the previous two quarters.
Insurance and claims expenses increased 130 bps y/y as a percentage of revenue. Depreciation and amortization expenses were 100 bps higher with cost buckets like salaries, wages and benefits, and operations and maintenance, both 80 bps higher.
Heartland reiterated a goal to have the combined entity operating at or better than an 85% OR within two years.
The company has cut its debt burden by more than half since leveraging up to make the acquisitions. It generated $71 million in cash flows from operations in the first half of 2024, closing the second quarter with $237 million in debt and financing lease obligations. However, the age of its consolidated tractor fleet increased from 2.1 years on average a year ago to 2.6 years in the recent period.
“We continue to believe that the freight market will improve as more capacity exits the market so the industry as a whole can return to more disciplined operating decisions and improved financial results,” Gerdin said. However, he said that expectation “likely extends into 2025.”
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