Labor Strike Dampens P.A.M. Transportation's Results
P.A.M. Transportation Services (NASDAQ: PTSI) announced third quarter 2019 earnings of $0.79, well below last year's $1.52 performance and the consensus estimate of $1.25.
The dry van truckload (TL) carrier called out the United Auto Workers labor strike against General Motors, its largest customer (representing 20% of PTSI's revenue), as the primary reason for the lower than expected results.
P.A.M. Transportation's president Daniel H. Cushman discussed negative earnings events experienced by its competitors over the years and how it compares to its loss of business this quarter, "I occasionally see mention of unusual events that have negatively impacted their earnings. P.A.M. experienced such an unusual event beginning September 16, 2019 in the form of the United Auto Workers labor strike against General Motors. I don't recall many mentions by others that compare to such a blow as having your largest customer essentially shut down operations without warning."
Cushman went on to explain that each July the company's automotive customers have shutdowns for scheduled facility maintenance. In these periods, the factories aren't shipping product, which typically results in a loss for P.A.M. during the month. However, even with the strike during the third quarter, PTSI remained profitable in every month of the period.
"At the inception of the strike we had to decide to either begin a holding pattern until the strike ended or to redeploy our assets elsewhere. We decided the latter and our sales, customer service, operations and logistics teams immediately began leading efforts to find replacement freight for the approximately 400 drivers affected, with our primary concern to do as much as we could to take care of them during this difficult time," Cushman continued.
P.A.M.'s operating revenue declined only 8% year-over-year in the quarter to $129 million, which included lower fuel surcharge and logistics revenue. Cushman said that the company was successful redeploying drivers and assets to other areas of service. The company reported a 10% year-over-year decline in revenue per truck per week to $3,466 as total loads remained basically flat and revenue per total mile (excluding fuel) improved 3.6% to $1.72.
P.A.M. Transportation's Key Performance Indicators
P.A.M. reported a 27% year-over-year decline in logistics revenue to $17.7 million. The company said that it believes the decline was in-line with that experienced by other asset-based logistics providers and largely due to lower spot market rates. The company's logistics operating ratio (OR) deteriorated 190 basis points to 96%.
Operating income declined 43% year-over-year in the quarter to $7.5 million as the company's TL operating ratio eroded 520 basis points to 92.6%.
Cushman sees the strike as an ongoing concern for the company.
"In the context of the challenges presented by the strike at General Motors, I am very pleased with our performance for the quarter. We have demonstrated a few very important things. The strike is not good for us and we will not be at optimum performance levels for as long as it lasts. General Motors, as our largest customer, is very good for us overall and we need the strike to end. We have also shown that, even with these extreme challenges, our current profit model can adapt to changing circumstances and market conditions," concluded Cushman.
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