WERNER ENTERPRISES, INC.
14507 Frontier Road
P. O. Box 45308
Omaha, Nebraska 68145
FOR IMMEDIATE RELEASE Contacts: Robert E. Synowicki, Jr.
- --------------------- Executive Vice President and
Chief Information Officer
(402) 894-3000
John J. Steele
Executive Vice President, Treasurer and
Chief Financial Officer
(402) 894-3036
WERNER ENTERPRISES REPORTS IMPROVED OPERATING REVENUES AND EARNINGS
Omaha, Nebraska, January 23, 2006:
- ---------------------------------
Werner Enterprises, Inc. (Nasdaq:WERN), one of the nation's largest
truckload transportation companies, reported improved operating revenues
and earnings for the fourth quarter and year ended December 31, 2005.
Operating revenues increased 16% to $526.3 million in fourth
quarter 2005 compared to $455.2 million in fourth quarter 2004. Net
income increased 12% to $28.8 million in fourth quarter 2005 compared to
$25.8 million in fourth quarter 2004. Earnings per share rose 12% to
$.36 per share in fourth quarter 2005 compared to $.32 in fourth quarter
2004.
For the year, operating revenues of $1.972 billion in 2005 were 18%
higher than $1.678 billion in 2004. Net income increased 13% to $98.5
million compared to $87.3 million in 2004. Earnings per share rose 13%
to $1.22 per share in 2005 compared to $1.08 in 2004.
Freight demand improved beginning in September 2005. From
September 2005 through the end of December 2005, freight demand was as
strong as the strong freight demand during the same period of 2004. One
way Werner measures freight demand for its non-dedicated fleets (58% of
the total truck fleet) is by comparing the number of available loads to
available trucks on a daily basis. Werner believes that a solid freight
shipping market for the Company's reliable truck service offerings
combined with an extremely tight truck capacity market, created the
strong fourth quarter 2005 freight market. For the first three weeks of
January 2006, freight demand declined from fourth quarter 2005, as
expected, when moving from the seasonally strongest freight period of
the year to the seasonally weakest freight period of the year. Freight
demand to date in January 2006 is slightly weaker than the first three
weeks of January 2005.
During third quarter and fourth quarter 2005, the Company's
marketing department renewed customer contracts and obtained annual base
rate increases for a substantial portion of the Company's non-dedicated
fleet business that renewed in the second half of 2005. The Company's
objective was to explain to customers the important steps Werner has
taken to minimize or delay certain controllable cost increases.
However, base rate increases continue to be necessary to recoup several
inflationary cost increases including driver pay and benefits, truck
engine emissions costs, and tolls and to improve the Company's return on
assets. The Company met its goals for these base rate increases, thanks
to the continued support of its customers.
In its third quarter 2005 earnings release dated October 17, 2005,
the Company estimated the negative impact of higher fuel costs on fourth
quarter 2005 earnings compared to fourth quarter 2004 earnings to be
eight to eleven cents per share, assuming diesel fuel prices remained at
then current price levels for the last eleven weeks of fourth quarter
2005. Two days after this release, diesel fuel prices began to decline
from record high price levels. When the Company filed its quarterly
report on Form 10-Q with the SEC for third quarter 2005 on October 31,
2005, the Company provided an updated estimate. Factoring in the
decline in diesel fuel prices during the last two weeks of October 2005,
the Company estimated the negative impact of high diesel fuel prices on
fourth quarter 2005 earnings compared to fourth quarter 2004 earnings to
be six to nine cents per share, assuming diesel fuel prices remained at
then current price levels for the last nine weeks of fourth quarter.
The Company includes the following items in the calculation of the
estimated impact of higher fuel costs on earnings for both periods: fuel
pricing, fuel reimbursement to owner-operator drivers, lower miles per
gallon (mpg) due to the increasing percentage of company-owned trucks
with post-October 2002 engines, and anticipated fuel surcharge
reimbursement.
Diesel fuel prices steadily declined in November 2005 from record
high price levels in October 2005. Prices averaged 89 cents a gallon
higher in October 2005 compared to October 2004, while prices in
November 2005 averaged 43 cents a gallon higher than November 2004.
Prices increased slightly in December 2005 and averaged 50 cents a
gallon higher than December 2004. For fourth quarter 2005 compared to
fourth quarter 2004, diesel fuel prices averaged 61 cents a gallon
higher. With the significant decline in fuel prices in November 2005,
the negative impact of higher fuel costs on fourth quarter 2005 earnings
compared to fourth quarter 2004 earnings was reduced to three cents per
share.
For the full year of 2005 compared to 2004, average diesel fuel
prices increased 56 cents a gallon, or 47%. The negative impact of
higher fuel costs on 2005 earnings compared to 2004 earnings was ten
cents per share.
Diesel fuel prices for the first twenty-three days of January 2006
averaged 51 cents per gallon, or 39%, higher than the same period in
January 2005. If diesel fuel prices remain at the average price for
the first 23 days of January 2006, the Company estimates that fuel will
have a negative impact on first quarter 2006 earnings compared to first
quarter 2005 earnings of three cents to five cents per share. It is
difficult to estimate the impact of higher fuel costs on earnings
because of changing fuel pricing trends, the temporary lag effect of
rapidly changing fuel prices on fuel surcharge revenues, and other
factors. The actual impact of higher fuel costs on earnings could be
higher or lower than estimated due to these factors.
The driver recruiting and retention market remains more challenging
than ever. The supply of qualified truck drivers continues to be
constrained due to alternative jobs to truck driving that are available
in today's economy. The Company continues to focus on driver quality of
life issues such as developing more driving jobs with more frequent home
time, providing drivers with newer trucks, and maximizing mileage
productivity within the federal hours of service (HOS) regulations.
Effective October 1, 2005, all truckload carriers became subject to
revised federal HOS regulations. The only significant change from the
previous regulations is that drivers using the sleeper berth provision
must take at least eight consecutive hours in the sleeper berth during
their ten hours off-duty. Previously, drivers were allowed to split
their ten hour off-duty time in the sleeper berth into two periods,
provided neither period was less than two hours. This somewhat more
restrictive sleeper berth provision required the Company, its drivers,
and customers to plan their time better in certain instances. In
general, the greatest negative impacts of the revised HOS regulations
are for multiple-stop shipments, those shipments with pickup or delivery
delays, and lower driver availability to meet transit schedules for
customers with overnight shipments that are dispatched in late afternoon
or early evening time periods.
Werner Enterprises is the only truckload carrier with a Federal
Motor Carrier Safety Administration (FMCSA) approved exemption for an
electronic HOS system (paperless log system). The Company was fully
prepared for the HOS changes as it had reprogrammed its proprietary
software to comply with the new regulations prior to October 1. For
fourth quarter 2005, the Company's average miles per truck were 0.3%
lower than fourth quarter 2004, due to the impact of the changing HOS
regulations and other factors such as a slightly lower average trip
length (in miles), offset by strong freight demand.
As planned, the average age of the Company's truck fleet declined
to 1.23 years as of December 31, 2005 compared to 1.58 years as of
December 31, 2004. The percentage of the Company's truck fleet with
post-October 2002 engines (EPA phase one) increased as planned and was
89% as of December 31, 2005 compared to 47% as of December 31, 2004. The
Company continues to experience approximately 5% lower mpg with the
post-October 2002 engines. The Company's net capital expenditures in
2005 were over $100 million higher than 2004, due to the Company's
decision to reduce the average age of its truck fleet. 2006 net capital
expenditures are expected to return to more normal levels, with lower
than normal expected truck purchases in the first half of 2006. It is
the Company's intention to keep our fleet as new as possible, in advance
of the federally mandated engine emission standards that are expected to
increase operating costs for newly manufactured trucks beginning in
January 2007 (EPA phase two).
The Company's wholly-owned subsidiary, Fleet Truck Sales, is one of
the largest domestic class 8 used truck sales companies and has been in
business since 1992. As a result of increased unit sales for our late-
model, driver-preferred trucks, partially offset by an increased ratio
of traded trucks to sold trucks, gains on sales of assets, primarily
trucks, were $2.4 million in fourth quarter 2005 compared to $2.7
million in fourth quarter 2004. Gains on sales are reflected as a
reduction of Other Operating Expenses in the Company's income statement.
Beginning in September 2005 after the rapid rise in fuel prices, the
Company experienced a temporary decline in unit sales of trucks due to
third-party finance companies not approving financing for prospective
truck buyers and due to some truck buyers canceling orders. Unit truck
sales improved in November and December 2005, compared to October 2005,
as fuel prices began to decline from record high levels.
The fourth quarter 2005 average percentage of empty miles is 12.71%
compared to fourth quarter 2004 of 11.24%, including the Dedicated
fleet. The increase in the empty mile percentage is the result of a
higher percentage of dedicated trucks in the fleet and a higher
percentage of regional shipments with a shorter length of haul. Over
the past few years, Werner has grown its dedicated fleets, arrangements
in which the Company provides trucks and/or trailers for the exclusive
use of a specific customer. For almost all the Company's dedicated
fleet arrangements, dedicated customers pay the Company on an all-miles
basis (loaded or empty) to obtain guaranteed truck and/or trailer
capacity. For freight management and statistical reporting purposes,
Werner classifies a mile without cargo in the trailer as an empty mile
(i.e., deadhead mile). Since dedicated fleets generally have a higher
percentage of miles without cargo in the trailer and since the Company
has been growing its dedicated fleet business, this has contributed to
an increase in the Company's reported empty mile percentage. Excluding
the Dedicated fleet, the empty mile percentage would be substantially
lower.
To provide customers with additional sources of capacity, the
Company has been rapidly growing its non-asset based Value Added
Services (VAS) division. VAS includes truck brokerage, freight
transportation management, intermodal, and multimodal service offerings.
Value Added Services (amounts in 000's) 4Q05 4Q04
- --------------------------------------- ---------------- ----------------
Revenues $60,046 100.0% $47,584 100.0%
Gross margin 6,304 10.5% 4,987 10.5%
Operating income 2,677 4.5% 2,223 4.7%
2005 2004
---------------- ----------------
Revenues $218,620 100.0% $161,111 100.0%
Gross margin 21,648 9.9% 15,637 9.7%
Operating income 8,445 3.9% 5,631 3.5%
Werner's expansion of its VAS service offerings assists customers
by providing needed capacity while driving cost out of their freight
system. The Company's VAS business operates with a lower operating
income percentage, but realizes a substantially higher return on assets
than the more capital-intensive truckload business due to the lower
equipment investment.
A very tight capacity market in fourth quarter 2005 made it more
difficult to find qualified truckload capacity to meet VAS customer
freight needs. However, the Company's marketing efforts continued to
successfully expand its VAS qualified carrier base in a constrained
capacity market, ending the quarter with 3,600 qualified broker
carriers. The Company expects a tight truckload capacity market in 2006
with the extremely challenging driver market and historically high fuel
prices.
During fourth quarter 2005, VAS expanded its small, but growing,
intermodal presence by entering into an agreement with Union Pacific
(UP) to lease UP-owned containers for intermodal freight shipments. As
of December 2005, VAS Intermodal was leasing 400 containers. VAS
Intermodal has the option to, and expects to, increase the number of
leased containers in 2006 as it further develops its intermodal freight
program.
A comparison of the Company's truckload operating ratio, net of
fuel surcharge revenues, and VAS operating ratio for fourth quarter 2005
and 2004 is shown below.
Operating Ratios 4Q05 4Q04 Difference
- ---------------- ------ ------ ----------
Truckload Transportation Services 88.0% 89.1% -1.1%
Value Added Services 95.5 95.3 0.2
2005 2004 Difference
------ ------ ----------
Truckload Transportation Services 89.6% 90.2% -0.6%
Value Added Services 96.1 96.5 -0.4
Higher fuel prices and higher fuel surcharge collections have the
effect of increasing the total company operating ratio and the Truckload
Transportation Services segment's operating ratio. Eliminating this
sometimes volatile source of revenue provides a more consistent basis
for comparing the results of operations from period to period. The
Truckload Transportation Services segment's operating ratio for fourth
quarter 2005 and fourth quarter 2004 is 90.0% and 90.3%, respectively,
and for 2005 and 2004 is 91.0% and 91.0%, respectively, if fuel
surcharge revenues are included in revenues and not netted against
operating expenses.
In the first quarter of 2006, Werner will adopt Statement of
Financial Accounting Standards No. 123(R) (SFAS 123(R)) for its share-
based compensation plan. Under SFAS 123(R), all share-based
compensation cost will be recognized as an expense in the income
statement. In 2005 and prior years, the Company accounted for share-
based compensation using the intrinsic value method prescribed in APB
Opinion No. 25, under which the Company recorded no compensation expense
since the exercise price of the options equaled the fair market value of
the underlying common stock on the date of grant. Management believes
that adopting the new standard will have a negative impact of
approximately 0.5 cents per share for the first quarter of 2006 and
approximately two cents per share for the year ending December 31, 2006,
representing the expense to be recognized for the unvested portion of
awards granted to date, and cannot predict the earnings impact of awards
that may be granted in the future.
The Company's financial position remains strong. As a result of the
significant increase in new trucks purchased during 2005, particularly
in fourth quarter 2005, the Company incurred debt of $60.0 million as of
December 31, 2005. The Company repaid $35.0 million to date in January
and expects to pay down the remaining debt during the first half of
2006, due to lower net capital expenditures. Stockholders' equity has
grown to $862.5 million, or $10.86 per share.
The Company's continuing goal is to improve its annual operating
income as a percentage of revenues to 10% or better before increasing
the Company's fleet growth rate, assuming an adequate supply of drivers
is available.
2006 marks Werner Enterprises' fiftieth year in the trucking
business. From humble beginnings with one man and one truck, the Company
has grown to become a recognized leader in the truckload transportation
industry. We are sincerely grateful for the important contributions of
our employees, customers, vendors, directors, and shareholders in
achieving this milestone. We are very excited about the prospects for
Werner Enterprises for the years ahead.
INCOME STATEMENT DATA
(Unaudited)
(In thousands, except per share amounts)
Quarter % of Quarter % of
Ended Operating Ended Operating
12/31/05 Revenues 12/31/04 Revenues
-------- -------- -------- --------
Operating revenues $526,276 100.0 $455,239 100.0
-------- -------- -------- --------
Operating expenses:
Salaries, wages and
benefits 146,296 27.8 139,839 30.7
Fuel 102,026 19.4 66,993 14.7
Supplies and maintenance 37,594 7.2 37,739 8.3
Taxes and licenses 30,796 5.9 28,081 6.2
Insurance and claims 23,780 4.5 19,799 4.4
Depreciation 41,082 7.8 37,392 8.2
Rent and purchased
transportation 92,830 17.6 80,218 17.6
Communications and
utilities 4,812 0.9 5,058 1.1
Other (1,448) (0.3) (1,848) (0.4)
-------- -------- -------- --------
Total operating
expenses 477,768 90.8 413,271 90.8
-------- -------- -------- --------
Operating income 48,508 9.2 41,968 9.2
-------- -------- -------- --------
Other expense (income):
Interest expense 416 0.1 2 0.0
Interest income (781) (0.2) (784) (0.2)
Other 4 0.0 59 0.0
-------- -------- -------- --------
Total other expense
(income) (361) (0.1) (723) (0.2)
-------- -------- -------- --------
Income before income taxes 48,869 9.3 42,691 9.4
Income taxes 20,042 3.8 16,868 3.7
-------- -------- -------- --------
Net income $28,827 5.5 $25,823 5.7
======== ======== ======== ========
Diluted shares outstanding 80,661 80,686
======== ========
Diluted earnings per share $.36 $.32
======== ========
OPERATING STATISTICS
(Quarter Ended December 31)
4Q05 % Change 4Q04
-------- -------- --------
Trucking revenues, net of
fuel surcharge (1) $384,028 7.1% $358,598
Trucking fuel surcharge
revenues (1) 77,297 81.8% 42,523
Non-trucking revenues,
including VAS (1) 62,215 20.7% 51,547
Other operating revenues (1) 2,736 6.4% 2,571
-------- --------
Operating revenues (1) $526,276 15.6% $455,239
======== ========
Average monthly miles per
tractor 10,049 -0.3% 10,076
Average revenues per total
mile (2) $1.447 4.3% $1.388
Average revenues per loaded
mile (2) $1.658 6.0% $1.564
Average percentage of empty
miles 12.71% 13.1% 11.24%
Average trip length in
miles (loaded) 570 -2.1% 582
Total miles (loaded and
empty) (1) 265,365 2.7% 258,395
Average tractors in service 8,802 3.0% 8,548
Average revenues per
tractor per week (2) $3,356 4.0% $3,227
Capital expenditures, net (1) $76,942 $61,996
Cash flow from operations (1) $34,438 $64,913
Return on assets (annualized) 8.5% 8.5%
Total tractors (at quarter
end)
Company 7,920 7,675
Owner-operator 830 925
-------- --------
Total tractors 8,750 8,600
Total trailers (at quarter
end) 25,210 23,540
(1) Amounts in thousands.
(2) Net of fuel surcharge revenues.
INCOME STATEMENT DATA
(In thousands, except per share amounts)
Year % of Year % of
Ended Operating Ended Operating
12/31/05 Revenues 12/31/04 Revenues
---------- -------- ---------- --------
Operating revenues $1,971,847 100.0 $1,678,043 100.0
---------- -------- ---------- --------
Operating expenses:
Salaries, wages and
benefits 574,893 29.2 544,424 32.5
Fuel 340,622 17.3 218,095 13.0
Supplies and maintenance 154,719 7.9 138,999 8.3
Taxes and licenses 118,853 6.0 109,720 6.5
Insurance and claims 88,595 4.5 76,991 4.6
Depreciation 162,462 8.2 144,535 8.6
Rent and purchased
transportation 354,335 18.0 289,186 17.2
Communications and
utilities 20,468 1.0 18,919 1.1
Other (7,711) (0.4) (4,154) (0.2)
---------- -------- ---------- --------
Total operating
expenses 1,807,236 91.7 1,536,715 91.6
---------- -------- ---------- --------
Operating income 164,611 8.3 141,328 8.4
---------- -------- ---------- --------
Other expense (income):
Interest expense 672 0.0 13 0.0
Interest income (3,381) (0.2) (2,580) (0.2)
Other 261 0.0 198 0.0
Total other expense ---------- -------- ---------- --------
(income) (2,448) (0.2) (2,369) (0.2)
---------- -------- ---------- --------
Income before income taxes 167,059 8.5 143,697 8.6
Income taxes 68,525 3.5 56,387 3.4
---------- -------- ---------- --------
Net income $98,534 5.0 $87,310 5.2
========== ======== ========== ========
Diluted shares outstanding 80,701 80,868
========== ==========
Diluted earnings per share $1.22 $1.08
========== ==========
OPERATING STATISTICS
(Year Ended December 31)
2005 % Change 2004
---------- ---------- ----------
Trucking revenues, net of
fuel surcharge (1) $1,493,826 8.3% $1,378,705
Trucking fuel surcharge
revenues (1) 235,690 106.5% 114,135
Non-trucking revenues,
including VAS (1) 230,863 31.6% 175,490
Other operating revenues (1) 11,468 18.1% 9,713
---------- ----------
Operating revenues (1) $1,971,847 17.5% $1,678,043
========== ==========
Average monthly miles per
tractor 10,076 -0.6% 10,137
Average revenues per total
mile (2) $1.413 5.4% $1.341
Average revenues per loaded
mile (2) $1.609 6.5% $1.511
Average percentage of empty
miles 12.17% 7.8% 11.29%
Average trip length in
miles (loaded) 568 -2.6% 583
Total miles (loaded and
empty) (1) 1,057,062 2.8% 1,028,458
Average tractors in service 8,742 3.4% 8,455
Average revenues per
tractor per week (2) $3,286 4.8% $3,136
Capital expenditures, net (1) $299,209 $196,190
Cash flow from operations (1) $172,492 $226,582
Return on assets (annualized) 7.6% 7.5%
Total tractors (at quarter
end)
Company 7,920 7,675
Owner-operator 830 925
---------- ----------
Total tractors 8,750 8,600
Total trailers (at quarter
end) 25,210 23,540
(1) Amounts in thousands.
(2) Net of fuel surcharge revenues.
BALANCE SHEET DATA
(In thousands, except share amounts)
12/31/05 12/31/04
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $36,583 $108,807
Accounts receivable, trade,
less allowance of $8,357 and
$8,189, respectively 240,224 186,771
Other receivables 19,914 11,832
Inventories and supplies 10,951 9,658
Prepaid taxes, licenses and permits 18,054 15,292
Current deferred income taxes 20,940 -
Other current assets 20,966 18,896
------------ ------------
Total current assets 367,632 351,256
------------ ------------
Property and equipment 1,555,764 1,374,649
Less - accumulated depreciation 553,157 511,651
------------ ------------
Property and equipment, net 1,002,607 862,998
------------ ------------
Other non-current assets 15,523 11,521
------------ ------------
$1,385,762 $1,225,775
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $52,387 $49,618
Current portion of long-term debt 60,000 -
Insurance and claims accruals 62,418 55,095
Accrued payroll 21,274 19,579
Current deferred income taxes - 15,569
Other current liabilities 21,838 17,705
------------ ------------
Total current liabilities 217,917 157,566
------------ ------------
Other long-term liabilities 526 301
Insurance and claims accruals,
net of current portion 95,000 84,000
Deferred income taxes 209,868 210,739
Stockholders' equity:
Common stock, $.01 par value,
200,000,000 shares authorized;
80,533,536 shares issued;
79,420,443 and 79,197,747 shares
outstanding, respectively 805 805
Paid-in capital 105,074 106,695
Retained earnings 777,260 691,035
Accumulated other comprehensive
loss (259) (861)
Treasury stock, at cost;
1,113,093 and 1,335,789
shares, respectively (20,429) (24,505)
------------ ------------
Total stockholders' equity 862,451 773,169
------------ ------------
$1,385,762 $1,225,775
============ ============
Werner Enterprises is a full-service transportation company
providing truckload and logistics services throughout the 48 states,
portions of Canada and Mexico. C.L. Werner founded the Company in 1956.
Werner is one of the nation's largest truckload transportation companies
with a fleet of 8,750 trucks and 25,210 trailers.
Werner Enterprises' common stock is traded on The Nasdaq Stock
Market under the symbol WERN. The Werner website address is
www.werner.com.
Note: This press release contains forward-looking statements,
which are based on information currently available. Actual results
could differ materially from those anticipated as a result of a number
of factors, including, but not limited to, those discussed in Item 7 of
the Company's Annual Report on Form 10-K for the year ended December 31,
2004. The Company assumes no obligation to update any forward-looking
statement to the extent it becomes aware that it will not be achieved
for any reason.