WERNER ENTERPRISES, INC.
14507 Frontier Road
P. O. Box 45308
Omaha, Nebraska 68145
FOR IMMEDIATE RELEASE Contact: 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 SECOND QUARTER 2006 REVENUES AND
EARNINGS
Omaha, Nebraska, July 19, 2006:
- ------------------------------
Werner Enterprises, Inc. (Nasdaq: WERN-news), one of the nation's
largest truckload transportation and logistics companies, reported
improved operating revenues and earnings for the second quarter ended
June 30, 2006.
Operating revenues increased 9% to $528.9 million compared to
$485.8 million in second quarter 2005. Net income increased 11% to
$28.0 million compared to $25.3 million in second quarter 2005.
Earnings per share for second quarter 2006 were $.35 per share, or 12%
higher than the $.31 per share earned in second quarter 2005.
"By focusing on the fundamentals of the Company's truckload
business and growing the revenues and operating income of its Value
Added Services business, Werner produced another good quarter," said
Chairman and Chief Executive Officer, Clarence (C.L.) Werner. "Thanks
to the significant contributions of the outstanding men and women of
Werner Enterprises, the Company achieved its nineteenth consecutive
quarter of improved year-over-year earnings."
As second quarter 2006 progressed, freight demand improved on a
year-over-year basis. April 2006 demand was comparable to April 2005.
Beginning the second week of May 2006, freight demand was better than
the same period of 2005. This favorable demand trend continued
throughout the last seven weeks of second quarter 2006. For the first
three weeks of July 2006, freight demand has been about the same as it
was in the first three weeks of July 2005. Werner measures freight
demand for all periods by comparing the percentage of available loads to
available trucks for its non-dedicated truck fleets.
A substantial portion of the Company's freight base is under
contract with customers and provides for annual pricing increases. A
significant portion of the Company's non-dedicated fleet contracts renew
and will be renegotiated during the second half of 2006. There continue
to be several inflationary cost pressures that are impacting truckload
carriers. They include: (1) driver pay and other driver-related costs
due to a difficult driver market, (2) rising diesel fuel prices, (3)
conversion from low sulfur diesel fuel to ultra-low sulfur diesel fuel
("ULSD"), (4) new engine emission requirements for newly manufactured
trucks beginning in January 2007 that are increasing the truck purchase
costs and lowering the miles per gallon ("mpg"), and (5) rising
liability and cargo insurance costs. To recoup these cost increases,
management will be seeking freight rate increases during the upcoming
contract renewal period. Werner continues to work closely with its
customers to develop innovative solutions that drive costs out of their
freight network, such as dedicated fleets, designated lanes, continuous
move shipments, and multi-customer freight optimization.
The driver market continues to be extremely challenging, as it
becomes even more difficult during the spring and summer months when the
truckload industry competes with construction, agricultural, and other
outdoor jobs that are more plentiful during this seasonal period.
Average tractors in service declined by 129 trucks from second quarter
2005 to second quarter 2006 due principally to the driver market;
however, the Company made significant progress improving its truck count
during the latter part of second quarter 2006 by reducing driver
turnover. Improving driver turnover continues to be a primary focus of
the Company's non-driver workforce.
For second quarter 2006 compared to second quarter 2005, the
Company's miles per tractor declined 2.6%. A significant portion of
this decrease is due to the ongoing shift of trucks from the medium-to-
long-haul van division (which has higher average miles per truck) to the
dedicated division (which has lower average miles per truck). The
revision to the hours of service regulations that went into effect in
October 2005 also caused lower miles per truck for some shorter haul or
multiple stop shipments.
In the Company's March 31, 2006 Form 10-Q filed with the Securities
and Exchange Commission on May 1, 2006, the Company estimated the
negative impact of higher fuel costs on second quarter 2006 earnings
compared to second quarter 2005 earnings to be four cents to six cents
per share, assuming diesel fuel prices for the last nine weeks of second
quarter 2006 remained at the average price for the first four weeks of
second quarter 2006. Fuel costs averaged 57 cents a gallon higher in
second quarter 2006 compared to second quarter 2005, but the Company's
average mpg was better than expected, and the Company's fuel surcharge
collections were higher than estimated, resulting in a two-cent per
share negative impact on second quarter 2006 earnings compared to second
quarter 2005 earnings. The Company includes all of the following items
in the calculation of the estimated impact of fuel costs on earnings for
both periods: (1) average fuel price per gallon, (2) fuel
reimbursements paid to owner-operator drivers, (3) lower mpg due to the
year-over-year increase in the percentage of the company-owned truck
fleet with post-October 2002 engines, and (4) offsetting fuel surcharge
revenues from customers.
As planned, the average age of the Company's truck fleet remained
new relative to historical standards at 1.32 years as of June 30, 2006.
The percentage of the Company's fleet with post-October 2002 engines
("Environmental Protection Agency ("EPA") phase one") was nearly 100% as
of June 30, 2006 compared to 68% as of June 30, 2005. It is the
Company's intention to keep its fleet as new as possible, in advance of
the federally mandated engine emission standards that are required for
all newly-manufactured trucks beginning in January 2007 ("EPA phase
two"). During the second half of 2006, the Company will be taking
delivery of a substantial number of new trucks.
Truckload carriers will be required to transition from low sulfur
diesel fuel to ULSD, as refiners gradually meet the October 15, 2006
transition date mandated by the EPA. Preliminary estimates are that
ULSD will result in a 1% to 3% degradation of fuel mpg for all trucks,
due to the lower energy content (btu) of ULSD. The EPA estimates the
higher cost of ULSD to the end user should not exceed eight cents per
gallon once the fuel becomes widely available. However, during the
transition period, supply and demand factors could cause the pricing of
ULSD to be more volatile. To the extent that diesel fuel prices
increase more significantly during the transition to ULSD, the Company's
fuel surcharge programs with its customers are designed to recover most
of the potential diesel fuel price increase.
The Company's wholly-owned subsidiary, Fleet Truck Sales, is one of
the largest domestic class 8 late-model truck sales companies and has
been in the business since 1992. Gains on sales of assets, primarily
trucks and trailers, increased to $7.1 million in second quarter 2006
compared to $3.6 million in second quarter 2005. In second quarter
2006, the Company spent less on repairs per truck sold than in second
quarter 2005. The Company continued to sell its oldest van trailers
that have already reached the end of their depreciable life. These
trailer sales contributed to the improved equipment gains in second
quarter 2006. The Company expects to continue to sell its oldest van
trailers during the remainder of 2006 as it replaces them with new van
trailers. Rising fuel prices in second quarter 2006 affected used truck
buyers and reduced the number of trucks sold in second quarter 2006
compared to first quarter 2006, when gains on sales were $8.8 million.
In addition, the pace of truck sales slowed during the latter part of
second quarter 2006 and into July 2006. If fuel prices remain high
going forward, the Company expects this could significantly limit truck
sales and, to a lesser extent, trailer sales. The number of trucks
planned for sale during 2007 is expected to be lower than the number
planned to be sold in 2006, and the Company plans to continue to replace
its oldest van trailers into 2007.
To provide customers with additional sources of capacity and expand
its portfolio of customer solutions, Werner is growing its non-asset
based Value Added Services ("VAS") division. VAS includes truck
brokerage, freight transportation management (single-source logistics),
and intermodal, as well as a newly expanded international product line.
VAS has a goal to grow revenues and operating income over 20% during
third and fourth quarter 2006 compared to third and fourth quarter 2005.
Financial results for VAS for second quarter 2006 compared to second
quarter 2005 are as follows:
Value Added Services (amounts in 000's) 2Q06 2Q05
- --------------------------------------- ---------------- ----------------
Revenues $68,807 100.0% $55,555 100.0%
Gross margin 6,603 9.6 5,150 9.3
Operating income 2,365 3.4 1,916 3.4
Truck brokerage generated 59% revenue growth, by providing
customers with truckload capacity solutions using a qualified carrier
base that has grown to approximately 4,250 carriers. The VAS brokerage
network consists of nine offices and 43 freight brokers. The brokerage
product line has expanded from dry van freight into the flatbed and
temperature-controlled segments of the business, which is accelerating
the growth rate. Brokerage is on pace to surpass revenues of $100
million in 2006 with improving operating margins.
Freight transportation management consists of managing customers'
freight needs as the lead logistics provider at either the network,
facility, or lane level. Through the use of leading- edge systems,
which include load, mode, and network optimization tools, Werner is able
to provide innovative solutions ranging from site selection to full
vendor management, including door-to-door delivery options throughout
North America and Asia. Much of the revenue generated by the freight
management group is recorded as revenue by the Company's operating group
that executes the shipment. Freight management represents one of the
largest sources of revenue growth for the brokerage and intermodal
groups.
Intermodal grew revenues by 119% due to the improved utilization of
the company-owned intermodal trailer fleet of over 1,250 trailers and
the previously announced 400 containers in the assigned container fleet
with Union Pacific. Sequentially from first quarter 2006, intermodal
improved trailer turns as it successfully expanded its intermodal
freight base. Intermodal operating income improved from first quarter
2006 to second quarter 2006. As a result of a series of recent
intermodal business awards, the combined trailer and container fleet is
expected to close 2006 at approximately 2,000 units. In addition to
company-owned and assigned equipment, intermodal has operating
agreements in place to utilize both rail and ocean carrier owned
containers consisting of 20, 40, 45, and 53 foot free-running equipment.
The Company recently formed Werner Global Logistics U.S., LLC, a
separate operating company within VAS. After several months of
researching and developing the Company's business plans, Werner is
announcing its entrance into the Asian transportation market. The
Company recently obtained its U.S. Ocean Transport Intermediary (NVOCC
and Ocean Freight Forwarding) license and established a local presence
with the opening of its Shanghai, China office. Both current and
prospective customers of Werner Enterprises have continued to express a
desire to enhance their visibility, management, and compliance
activities related to their ever lengthening supply chains. By combining
Werner's 50 years of experience in the transportation marketplace with
its leading-edge tools and logistics know-how, the Company is positioned
to provide a quality solution to customers' ground network needs on both
sides of the Trans-Pacific trade lanes. Expectations for the product
offering in China will include site selection analysis, vendor and PO
management, FCL consolidation and warehousing, as well as door-to-door
freight forwarding and customs brokerage. These services are expected to
be achieved through a combination of strategic alliances with best in
class providers throughout the Trans-Pacific supply chain and company-
owned assets.
A comparison of the Company's truckload operating ratio, net of
fuel surcharge revenues, and VAS operating ratio for second quarters
2006 and 2005 is shown below.
Operating Ratios 2Q06 2Q05 Difference
- ---------------- ------ ------ ----------
Truckload Transportation Services 88.4% 89.4% -1.0%
Value Added Services 96.6 96.6 0.0
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 second
quarter 2006 and second quarter 2005 is 90.4% and 90.7%, respectively,
if fuel surcharge revenues are included in revenues and not netted
against operating expenses.
In the first quarter of 2006, Werner adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R) for its share-based compensation
plan on a modified prospective basis. Under SFAS No. 123(R), all share-
based compensation cost is 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. The Company recorded
expense of $0.6 million in Salaries, Wages and Benefits (or 0.5 cents
per share, net of taxes) in second quarter 2006. The estimated impact of
this new accounting standard for the full year of 2006 is approximately
two cents per share, representing the expense to be recognized for the
unvested portion of awards granted to date. The Company cannot predict
the earnings impact of any awards that may be granted in the future.
The Company's financial position remains strong. Werner Enterprises
had $42.8 million of cash and no debt as of June 30, 2006. Due to
significant truck purchases scheduled for the second half of 2006, the
Company expects to have debt borrowings later during 2006, and the
Company expects to repay these borrowings in the first half of 2007 when
truck purchases are expected to be lower. Stockholders' equity grew to
$871.9 million, or $11.21 per share. During second quarter 2006, the
Company purchased one million shares of its common stock at an average
share price of $19.65, bringing its year-to-date purchases to two
million shares at an average price per share of $19.74.
INCOME STATEMENT DATA
(Unaudited)
(In thousands, except per share amounts)
Quarter Ended % of Operating Quarter Ended % of Operating
06/30/06 Revenues 06/30/05 Revenues
------------- -------------- ------------- --------------
Operating revenues $528,889 100.0 $485,789 100.0
------------- -------------- ------------- --------------
Operating expenses:
Salaries, wages and
benefits 149,743 28.3 141,332 29.1
Fuel 102,812 19.4 78,064 16.1
Supplies and maintenance 38,982 7.4 39,921 8.2
Taxes and licenses 27,905 5.3 29,465 6.1
Insurance and claims 21,613 4.1 21,838 4.4
Depreciation 41,072 7.8 40,539 8.3
Rent and purchased
transportation 101,335 19.1 90,342 18.6
Communications and
utilities 4,827 0.9 5,134 1.1
Other (5,751) (1.1) (2,974) (0.6)
------------- -------------- ------------- --------------
Total operating
expenses 482,538 91.2 443,661 91.3
------------- -------------- ------------- --------------
Operating income 46,351 8.8 42,128 8.7
------------- -------------- ------------- --------------
Other expense (income):
Interest expense 4 0.0 2 0.0
Interest income (1,221) (0.2) (822) (0.1)
Other 85 0.0 46 0.0
------------- -------------- ------------- --------------
Total other expense
(income) (1,132) (0.2) (774) (0.1)
------------- -------------- ------------- --------------
Income before income taxes 47,483 9.0 42,902 8.8
Income taxes 19,462 3.7 17,607 3.6
------------- -------------- ------------- --------------
Net income $28,021 5.3 $25,295 5.2
============= ============== ============= ==============
Diluted shares outstanding 79,689 80,692
============= =============
Diluted earnings per share $.35 $.31
============= =============
OPERATING STATISTICS
Quarter Ended Quarter Ended
06/30/06 % Change 06/30/05
------------- -------------- -------------
Trucking revenues, net of
fuel surcharge (1) $375,897 1.2% $371,612
Trucking fuel surcharge
revenues (1) 78,213 50.5% 51,967
Non-trucking revenues,
including VAS (1) 71,569 21.2% 59,065
Other operating revenues (1) 3,210 2.1% 3,145
------------- -------------
Operating revenues (1) $528,889 8.9% $485,789
============= =============
Average monthly miles per
tractor 9,938 -2.6% 10,199
Average revenues per total
mile (2) $1.463 5.3% $1.389
Average revenues per loaded
mile (2) $1.679 6.4% $1.578
Average percentage of empty
miles (3) 12.84% 7.1% 11.99%
Average trip length in miles
(loaded) 584 3.2% 566
Total miles (loaded and
empty) (1) 256,852 -4.0% 267,547
Average tractors in service 8,615 -1.5% 8,744
Average revenues per tractor
per week (2) $3,356 2.7% $3,269
Capital expenditures, net (1) $33,965 $73,630
Cash flow from operations (1) $43,595 $29,246
Return on assets (annualized) 8.3% 8.0%
Total tractors (at quarter
end)
Company 7,905 7,820
Owner-operator 805 930
------------- -------------
Total tractors 8,710 8,750
Total trailers (truck and
intermodal, at quarter end) 25,180 24,090
Managed containers (at
quarter end) 400 -
(1) Amounts in thousands.
(2) Net of fuel surcharge revenues.
(3) Miles without trailer cargo. Dedicated fleets have a higher empty
mile percentage, which is priced in the dedicated business.
INCOME STATEMENT DATA
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended % of Operating Six Months Ended % of Operating
06/30/06 Revenues 06/30/05 Revenues
---------------- -------------- ---------------- --------------
Operating revenues $1,020,811 100.0 $941,051 100.0
---------------- -------------- ---------------- --------------
Operating expenses:
Salaries, wages and
benefits 296,356 29.0 281,554 29.9
Fuel 191,458 18.8 145,692 15.5
Supplies and maintenance 76,774 7.5 76,675 8.1
Taxes and licenses 57,374 5.6 58,243 6.2
Insurance and claims 40,808 4.0 45,038 4.8
Depreciation 82,173 8.1 80,176 8.5
Rent and purchased
transportation 189,354 18.5 172,909 18.4
Communications and
utilities 9,722 1.0 10,576 1.1
Other (6,381) (0.6) (4,777) (0.5)
---------------- -------------- ---------------- --------------
Total operating
expenses 937,638 91.9 866,086 92.0
---------------- -------------- ---------------- --------------
Operating income 83,173 8.1 74,965 8.0
---------------- -------------- ---------------- --------------
Other expense (income):
Interest expense 277 0.0 6 0.0
Interest income (2,216) (0.2) (1,787) (0.1)
Other 126 0.0 73 0.0
---------------- -------------- ---------------- --------------
Total other expense
(income) (1,813) (0.2) (1,708) (0.1)
---------------- -------------- ---------------- --------------
Income before income taxes 84,986 8.3 76,673 8.1
Income taxes 34,936 3.4 31,457 3.3
---------------- -------------- ---------------- --------------
Net Income $50,050 4.9 $45,216 4.8
================ ============== ================ ==============
Diluted shares outstanding 80,324 80,754
================ ================
Diluted earnings per share $.62 $.56
================ ================
OPERATING STATISTICS
YTD06 % Change YTD 05
---------------- -------------- ----------------
Trucking revenues, net of
fuel surcharge (1) $744,153 2.0% $729,478
Trucking fuel surcharge
revenues (1) 140,101 50.8% 92,903
Non-trucking revenues,
including VAS (1) 130,549 15.8% 112,742
Other operating revenues (1) 6,008 1.3% 5,928
---------------- ----------------
Operating revenues (1) $1,020,811 8.5% $941,051
================ ================
Average monthly miles per
tractor 9,886 -1.8% 10,066
Average revenues per total
mile (2) $1.456 4.7% $1.391
Average revenues per loaded
mile (2) $1.671 5.8% $1.579
Average percentage of empty
miles (3) 12.87% 8.3% 11.88%
Average trip length in miles
(loaded) 585 2.8% 569
Total miles (loaded and
empty) (1) 511,169 -2.5% 524,393
Average tractors in service 8,618 -0.7% 8,682
Average revenues per tractor
per week (2) $3,321 2.8% $3,231
Capital expenditures, net (1) $41,835 $152,661
Cash flow from operations (1) $147,115 $96,271
Return on assets (annualized) 7.4% 7.2%
Total tractors (at quarter
end)
Company 7,905 7,820
Owner-operator 805 930
---------------- ----------------
Total tractors 8,710 8,750
Total trailers (truck and
intermodal, at quarter end) 25,180 24,090
Managed containers (at
quarter end) 400 -
(1) Amounts in thousands.
(2) Net of fuel surcharge revenues.
(3) Miles without trailer cargo. Dedicated fleets have a higher empty
mile percentage, which is priced in the dedicated business.
BALANCE SHEET DATA
(In thousands, except share amounts)
6/30/06 12/31/05
-------------- --------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $42,810 $36,583
Accounts receivable, trade, less allowance
of $15,828 and $8,357, respectively 233,504 240,224
Other receivables 17,370 19,914
Inventories and supplies 10,576 10,951
Prepaid taxes, licenses and permits 8,215 18,054
Current deferred income taxes 21,900 20,940
Other current assets 22,755 20,966
-------------- --------------
Total current assets 357,130 367,632
-------------- --------------
Property and equipment 1,538,914 1,555,764
Less - accumulated depreciation 564,213 553,157
-------------- --------------
Property and equipment, net 974,701 1,002,607
-------------- --------------
Other non-current assets 16,420 15,523
-------------- --------------
$1,348,251 $1,385,762
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $63,273 $52,387
Current portion of long-term debt - 60,000
Insurance and claims accruals 60,511 62,418
Accrued payroll 22,502 21,274
Other current liabilities 18,321 21,838
-------------- --------------
Total current liabilities 164,607 217,917
-------------- --------------
Other long-term liabilities 745 526
Insurance and claims accruals, net of
current portion 97,500 95,000
Deferred income taxes 213,525 209,868
Stockholders' equity:
Common stock, $.01 par value,
200,000,000 shares authorized;
80,533,536 shares issued;
77,810,695 and 79,420,443 shares
outstanding, respectively 805 805
Paid-in capital 104,391 105,074
Retained earnings 820,657 777,260
Accumulated other comprehensive loss (1,269) (259)
Treasury stock, at cost;
2,722,841 and 1,113,093
shares, respectively (52,710) (20,429)
-------------- --------------
Total stockholders' equity 871,874 862,451
-------------- --------------
$1,348,251 $1,385,762
============== ==============
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 and
logistics companies with a fleet of 8,710 trucks and 25,180 trailers.
Werner Enterprises' common stock is traded on The Nasdaq Stock
Market under the symbol WERN. As of July 3, 2006, Werner is included in
the new NASDAQ Global Select Market tier, and was listed on the NASDAQ
National Market tier prior to the change. The NASDAQ Global Select
Market has the highest listing standards, including measures of market
value, liquidity, and earnings. 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 1A of
the Company's Annual Report on Form 10-K for the year ended December 31,
2005. 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.