The top three carriers on Today's Trucking's Top 100 For-Hire Canadian fleets — TransForce, Mullen Group, and Vitran — have finished reporting their second-quarter 2013 results.
Each company reported revenue drops of various sizes, with certain segments doing well while others not so well. The economy continues to be a problem, and the market tough to read. But if there's anything to take away from the big three, it's that 2013 will continue to be about discipline and improving efficiency.
TransForce Feels Drop in Drilling
TransForce, number one on the Top 100, reported total revenue of $792.3 million, compared with $812.0 million last year.
Total revenue declined by 2.4 percent to $792.3 million mainly due to lower revenue in services to the Energy sector and in TL activities, the carrier reported. That was partially offset by the contribution Velocity Express, a Texas-based courier company that TransForce acquired in February of this year.
Second-quarter EBIT amounted to $62.3 million versus $68.6 million from the same period last year. Excluding the loss at Velocity, the EBIT margin remained essentially stable at 8.4 percent.
“Profit improvements in Package and Courier and less-than-truckload activities were overshadowed by continued weakness in rig moving activities of the energy sector, resulting in lower year-over-year revenue and EBIT for TransForce in the second quarter,” explained Alain Bédard, chairman, president and CEO of TransForce.
Bédard said that margins from existing Package and Courier operations improved and any efficiency gains more than offset that loss at Velocity.
In their LTL segment, Bédard said that measures to rationalize their asset base were successful and "reduce costs resulted in a higher year-over-year EBIT before gains on the disposal of property and equipment."
"A weak economy negatively impacted the Truckload segment," he said, "and we vigilantly allocated resources to reflect demand variations."
The severe drop in North America drilling activity affected their energy sector services, Bédard noted, before adding that they have taken "proactive measures to better align supply" to new demand levels.
Finally, services to the Energy sector remained considerably affected by the severe decline in drilling activity in North America and we have taken proactive measures to better align supply to new demand levels,” added Mr. Bédard.
Outlook-wise, Bédard said they are progressing well in the United States with the integration of their same-day Package and Courier operations. The market is growing "but softness persists in the energy sector and we do not see any short-term significant improvement.
"Industry conditions remain difficult in Canada across all business segments and we do not expect the situation to improve for the remainder of 2013," Bedard said frankly. It limits organic growth, which means key drivers for revenue and EBIT growth will continue to be efficiency improvement, asset rationalization and a disciplined acquisition strategy, Bedard summed up.
And speaking of acquisitions, TransForce also took the second-quarter report as opportunity to announce their plans to acquire E.L. Farmer & Company. "Operating mainly in all regions of Texas, E.L. Farmer is an asset-light dedicated provider of pipe storage and hauling services for the oilfield industry." They expect the transaction to generate annual revenues of $70.0 million. Look for that transaction to be completed in the third quarter.
Mullen: Diversity and Strength of Business Model Key
Mullen Group — number two on the Top 100 — is seeing much of the same as TransForce, but is looking at the remainder of the year a little more positively.
Mullen saw consolidated revenue of $310.3 million, a $9.8 million drop from the $320.1 million generated in 2012.
But the majority of that $9.8 million drop came from the $8 million was directly attributable to the reduction in revenue from Canadian Dewatering L.P. as a result of its completion of the design, build and commissioning of a Thin Fine Tailings (TFT) barge system project for a large oil sands customer during the second quarter of 2012, Mullen "On a comparative basis, after adjusting for the non-recurring TFT barge system project revenue, Mullen Group's revenue from its core business decreased by only $1.8 million."
Mullen generated $75.1 million net cash from operating activities, which the company said was used, among other things, to acquire net property, plant and equipment of $49 million, pay dividends of $27 million, fund the acquisition of Jay's Moving & Storage Ltd. for $21.2 million.
Operating income came in at $56 million, an increase of $2.9 million from the $53.1 million generated in 2012. The majority of that increase — $2.5 million — came from the Oilfield Services segment. Trucking/Logistics segment accounted for $0.2 million and Corporate costs dropped by $0.2 million. The Oilfield Services segment generated a $2.5 million increase in operating income on a year over year basis.
"Overall we are pleased with Mullen Group's operating performance for the quarter considering economic fundamentals that are indicative of a no growth or, at best, a slow growth economy," summed up Stephen Lockwood, president and co-CEO.
They, too, felt the slowing of drills. "In terms of revenue from our core business, we were down marginally due to the decrease in demand for our services tied to drilling activity that experienced a slow down in western Canada, which in part was the result of unfavourable weather conditions."
Offsetting the TFT barge system project and the oil drilling slowdown was continued demand for their Premay Pipeline Hauling L.P. services, Lockwood said, "which are directly tied to the build out of new pipeline takeaway capacity in Canada. Heavy Crude Hauling L.P. also increased revenue as a result of it being awarded a major crude oil and fluid hauling contract in the Lloydminster region.
"Even more satisfying is the 5.5 percent increase in operating income Mullen Group recorded in the quarter compared to last year despite a decrease in revenue. These operating results speak to the strength and diversity of our business model," Lockwood said.
Still, it's tough out there. "This is a very difficult market to read, a real dilemma when trying to determine the appropriate level of capital to deploy," said Murray Mullen, chairman and CEO. Mullen said that they took a very measured approach to capital allocation coming into 2013 given the prospects for the overall economy as well as the oil and natural gas industry.
"Today, however, we are of the view that the foundation is set for a rebound in oil and natural gas activity levels. Crude oil pricing remains strong accompanied by significant optimism related to the export of natural gas from western Canada through the west coast.
With that outlook, Mullen said they will increase their capital budget by $20 million this year, which "will ensure our operating entities can meet the expected increase in demand for services and ensure our people have access to the very best operating equipment."
Vitran: A Revamped Focus on Sales and Tech to Improve U.S. LTL
Finally, Vitran reported a 10 decrease in revenues to $165.4 million in the second quarter of 2013. Last year during the same period they pulled in $183.8 million.
Additional proceeds of $1.8 million came from the sale of its Supply Chain Operation. The company said they also recorded $1.8 million in severance costs associated with the departure of its previous president and CEO.
Vitran posted a loss from operations in its LTL business of $12.3 million compared to $3.3 million for the 2012 second quarter. Shipments and tonnage decreased 11.2 percent and 11.8 percent respectively from Q2 2012.
The LTL loss looks to be mainly from their U.S. LTL business unit, which weighed down Vitran's consolidated financial results. "Vitran's Board of Directors continues to proactively address the challenges in its U.S. LTL business," said Interim President and CEO William Deluce. Specifically, Deluce noted investing in technology, a revamped focus on sales, "and the transfer of Vitran's western service offering to an interline partnership." Deluce said that he's confident those initiatives will improve the U.S. LTL's longer-term prospects.
As for the Canadian LTL business, Deluce said he's extremely pleased with the operating results. "Commercial efforts by the Canadian management team are bearing fruit, with an increase in activity levels year-over-year. We continue to expect positive results in the quarters to come and are proud of the excellent service we deliver consistently every day to our customers in Canada."
