Losses at Heartland Express continue to mount

Heartland (NASDAQ: HTLD) does not provide operating metrics for utilization and pricing.

It recorded a loss on the operating line as well.

A 102.6% adjusted operating ratio (operating expenses expressed as a percentage of revenue) was 20 basis points worse y/y and 320 bps worse than the second quarter. Salaries, wages and benefits (as a percentage of revenue) increased 100 bps y/y. Maintenance expense was 180 bps higher as the average tractor age increased from 1.9 years in the 2023 third quarter to 2.7 years in the recent period.

Insurance and claims expense was 120 bps higher.

The string of poor results not only stems from a downturn in the freight market but also from inferior results at the two fleets it acquired in the summer of 2022 – shortly after the start of the freight recession.

“We believe that the last four quarters of this current freight cycle are arguably the worst four consecutive quarters experienced in the trucking industry over the Company’s 45+ year history,” CEO Mike Gerdin said in a Tuesday news release.

A $5.9 million adjusted operating loss compared to adjusted operating income of $1.5 million in the second quarter.

Heartland said its legacy fleets have operated at a 92.3% OR over the past year, much better than the acquired companies (Smith Transport and Contract Freighters), but still well off the low-80s OR it is targeting. The acquired fleets have seen sequential (from the six months ended March 31 to the six months ended Sept. 30) OR improvements of 600 bps and 500 bps, respectively.

The company said the improvement has been solely tied to cost cutting and that market improvement is needed to improve margins.

“We believe that we will need a meaningful turnaround in the freight environment, and the associated increase in demand for our on-time freight service, in order to improve the utilization of our assets and lower our consolidated operating ratio back to our long-term expectations,” Gerdin said.

He did point to “encouraging signs” in October but said that he’s not expecting “impactful improvement until 2025.”

Heartland has cut its debt load by more than half since leveraging up to make the acquisitions. It generated $107 million in cash flows from operations in the first nine months of the year, closing the third quarter with $207 million in debt and financing lease obligations.

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