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 THIRD QUARTER 2006 REVENUES AND EARNINGS
Omaha, Nebraska, October 16, 2006:
- ---------------------------------
Werner Enterprises, Inc. (Nasdaq: WERN-news), one of the nation's
largest truckload transportation and logistics companies, reported
operating revenues and earnings for the third quarter ended September
30, 2006.
Operating revenues increased 7% to $541.3 million compared to
$504.5 million in third quarter 2005. Net income increased to $24.6
million compared to $24.5 million in third quarter 2005. Earnings per
share for third quarter 2006 were $.31 per share, or 3% higher than the
$.30 per share earned in third quarter 2005.
"Despite the significant challenges of a softer freight market
compared to the normal pickup in freight demand that typically occurs
during third quarter, and unusually high insurance and claims costs,
Werner Enterprises produced good results. The strength and stability of
our long-term customer partnerships combined with the outstanding
contributions of our employees continue to be the keys to our success,"
said Chairman and Chief Executive Officer Clarence (C.L.) Werner.
For the month of July 2006 freight demand was about the same as
July 2005. However, the Company did not experience the normal seasonal
improvement in freight demand from mid- August to the end of September
2006. One way Werner measures freight demand for its non-dedicated
fleets (nearly 60% of the total truck fleet) is by comparing the number
of available loads to available trucks on a daily basis. Freight demand
comparisons in third quarter 2006 to third quarter 2005 were more
difficult due to the strong freight demand that occurred beginning in
September 2005, when truck capacity tightened after Hurricane Katrina,
which occurred late August 2005.
During third quarter 2006 compared to third quarter 2005, Werner
experienced a significant reduction in freight demand for longer haul
shipments. Freight demand for shorter haul shipments in its regional
fleets remained at nearly the same level year over year. The Company
believes that some large retailers may be tightly controlling inventory
levels, which is causing fewer longer haul freight shipments into retail
distribution centers. In addition, recent weakness in the housing and
automotive sectors of the economy that are not significant freight
markets for the Company, may be causing other truckload carriers to
compete more aggressively for replacement freight in other freight
markets served by the Company.
For third quarter 2006 compared to third quarter 2005, the
Company's average miles per tractor declined by 3.8%. This decline was
caused by several factors including (1) the softer freight market, (2)
the decrease in trucks in the Company's medium-to-long-haul van division
which has a longer average length of haul and higher average miles per
truck, (3) the revision to the hours of service rules in October 2005
which resulted in lower miles per tractor for some shorter haul
shipments or multiple stop shipments, and (4) one less business day in
third quarter 2006 (63 business days) compared to third quarter 2005 (64
business days).
Freight demand in October 2006 through the date of this release
continues to be significantly softer than freight demand compared to the
same period in October 2005. To date, the Company has not experienced
the normal seasonal improvement in freight demand that it would expect
to see by mid-October.
The driver recruiting market continues to be extremely challenging
and very competitive among truckload carriers. The Company's ongoing,
company-wide focus to lower driver turnover yielded meaningful positive
results in third quarter 2006, as average tractors in service grew
sequentially from second quarter 2006 by 224 tractors and grew by 37
tractors compared to third quarter 2005.
Fuel costs averaged 28 cents a gallon higher in third quarter 2006
compared to third quarter 2005. By month, July 2006 fuel averaged 59
cents a gallon higher than July 2005, August 2006 averaged 50 cents a
gallon higher than August 2005, and September 2006 averaged 26 cents a
gallon lower than September 2005. Fuel prices increased in September
2005 due to the impact of Hurricanes Katrina and Rita and declined
during September 2006 by 41 cents a gallon from the beginning of the
month to the end of the month. For third quarter 2006 compared to third
quarter 2005, net fuel costs had no impact on earnings per share. The
Company includes all of the following items in the calculation of the
impact of fuel on earnings for both periods: (1) average fuel price per
gallon, (2) fuel reimbursements paid to owner-operator drivers,
(3) lower miles per gallon ("mpg") due to the year-over-year increase in
the percentage of the company-owned truck fleet with post-October 2002
engines and the mpg impact of ultra low sulfur diesel fuel, and
(4) offsetting fuel surcharge revenues from customers.
During third quarter 2006, truckload carriers transitioned a
substantial portion of their diesel fuel consumption from low sulfur
diesel fuel to ultra low sulfur diesel ("ULSD") fuel, as fuel refiners
were required to meet the Environmental Protection Agency ("EPA")-
mandated 80% ULSD threshold by the transition date of October 15, 2006.
Preliminary estimates were that ULSD would result in a 1-3% degradation
in mpg for all trucks, due to the lower energy content (btu) of ULSD.
Based on the Company's fuel mpg experience to date, these preliminary
mpg degradation estimates are accurate.
The recent decline in diesel fuel prices is substantially reducing
the Company's fuel expense and is substantially lowering fuel surcharge
revenues. Most importantly, this fuel price reduction is lowering our
customers' freight bills. For example, the Department of Energy ("DOE")
survey price per gallon (which is used to calculate most customer fuel
surcharge programs) was $3.15 per gallon a year ago on October 10, 2005
compared to the DOE fuel price of $2.51 per gallon on October 9, 2006.
Using a 5-cent fuel surcharge bracket, the 64-cent per gallon reduction
in year-over-year DOE fuel price would result in a nearly 13-cent per
mile savings to our customers. Werner's standard fuel surcharge
programs are designed to avoid including the changing cost of fuel in
base per-mile rates, which means when fuel prices decline, our customers
immediately benefit from lower fuel surcharge bills.
As planned, the average age of the Company's truck fleet remained
new relative to historical standards at 1.35 years as of September 30,
2006. The Company intends to keep its fleet as new as possible, to
delay the cost impact of the federally mandated engine emission
standards that are required for all newly-manufactured engines beginning
in January 2007. During fourth quarter 2006, the Company will be taking
delivery of a substantial number of new trucks, and those trucks are
expected to be placed in service during the first half of 2007.
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 business since 1992. Gains on sales of assets, primarily trucks
and trailers, increased to $5.6 million in third quarter 2006 compared
to $2.5 million in third quarter 2005. Gains on sales are reflected as
a reduction of Other Operating Expenses in the accompanying income
statement data. 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 third
quarter 2006. The Company's truck sales were not as strong in third
quarter 2006, as compared to first quarter 2006 and second quarter 2006.
The Company believes there is a temporary increase in the supply of
class 8 trucks currently available for sale, caused by some carriers
attempting to sell more trucks while at the same time buying more new
trucks in advance of the January 2007 truck engine change. The Company
plans to sell fewer trucks in 2007 than in 2006 and plans to continue to
sell and replace its oldest van trailers in 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.
Financial results for VAS for third quarter 2006 compared to third
quarter 2005 are as follows:
Value Added Services (amounts in 000's) 3Q06 3Q05
- --------------------------------------- -------------- --------------
Revenues $71,405 100.0% $52,859 100.0%
Gross margin 6,532 9.1 5,200 9.8
Operating income 1,850 2.6 1,859 3.5
Brokerage is performing very well by providing customers with
truckload capacity solutions using a qualified carrier base that has
grown to approximately 4,500 carriers. Brokerage continues to be on
pace to surpass revenues of $100 million in 2006. Freight
transportation management consists of managing customers' freight needs
as the lead logistics provider at either the network, facility, or lane
level. Freight transportation management continues to grow its
revenues in 2006. Intermodal continued its revenue growth in the
quarter by expanding its equipment fleet in support of the development
of its customer base. As the intermodal product matures, we expect to
see continued revenue growth with stronger margin returns.
In July 2006, the Company announced the formation of Werner Global
Logistics U.S., LLC ("WGL"), a separate company that operates within the
VAS segment. After several months of researching and developing the
Company's business plans, Werner announced its entrance into the Asian
transportation market. During third quarter 2006, WGL began to generate
a small amount of freight forwarding revenues to partially offset
startup costs for salaries, legal/consulting, and travel expenses. The
Company expects WGL to be a more meaningful revenue contributor in 2007.
A comparison of the Company's truckload operating ratio, net of
fuel surcharge revenues, and VAS operating ratio for third quarters 2006
and 2005 is shown below.
Operating Ratios 3Q06 3Q05 Difference
- ---------------- -------- -------- ----------
Truckload Transportation Services 89.9% 89.9% 0.0%
Value Added Services 97.4 96.5 0.9
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 third
quarter 2006 and third quarter 2005 is 91.7% and 91.3%, 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 $0.5 million in Salaries, Wages and Benefits (or 0.4 cents
per share, net of taxes) in third 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 $26.9 million of cash and $10.0 million of debt as of September 30,
2006. Due to significant truck purchases scheduled for fourth quarter
2006, the Company expects to have increased debt borrowings as of
December 2006. Stockholders' equity grew to $876.5 million, or $11.41
per share. During third quarter 2006, the Company purchased one million
shares of its common stock at an average share price of $17.91.
INCOME STATEMENT DATA
(Unaudited)
(In thousands, except per share amounts)
Quarter Ended % of Operating Quarter Ended % of Operating
09/30/06 Revenues 09/30/05 Revenues
------------- -------------- ------------- --------------
Operating revenues $541,297 100.0 $504,520 100.0
------------- -------------- ------------- --------------
Operating expenses:
Salaries, wages and
benefits 149,466 27.6 147,043 29.1
Fuel 106,946 19.8 92,904 18.4
Supplies and maintenance 41,427 7.7 40,450 8.0
Taxes and licenses 30,069 5.6 29,814 5.9
Insurance and claims 24,079 4.4 19,777 3.9
Depreciation 42,623 7.9 41,204 8.2
Rent and purchased
transportation 105,150 19.4 88,596 17.6
Communications and
utilities 5,117 0.9 5,080 1.0
Other (4,266) (0.8) (1,486) (0.3)
------------- -------------- ------------- --------------
Total operating
expenses 500,611 92.5 463,382 91.8
------------- -------------- ------------- --------------
Operating income 40,686 7.5 41,138 8.2
------------- -------------- ------------- --------------
Other expense (income):
Interest expense 65 0.0 250 0.0
Interest income (1,079) (0.2) (813) (0.1)
Other 59 0.0 184 0.0
------------- -------------- ------------- --------------
Total other expense
(income) (955) (0.2) (379) (0.1)
------------- -------------- ------------- --------------
Income before income taxes 41,641 7.7 41,517 8.3
Income taxes 17,090 3.2 17,026 3.4
------------- -------------- ------------- --------------
Net income $24,551 4.5 $24,491 4.9
============= ============== ============= ==============
Diluted shares outstanding 78,564 80,626
============= =============
Diluted earnings per share $.31 $.30
============= =============
OPERATING STATISTICS
Quarter Ended Quarter Ended
09/30/06 % Change 09/30/05
------------- -------------- -------------
Trucking revenues, net of
fuel surcharge (1) $381,108 0.2% $380,320
Trucking fuel surcharge
revenues (1) 82,088 25.3% 65,490
Non-trucking revenues,
including VAS (1) 74,519 33.3% 55,906
Other operating revenues (1) 3,582 27.7% 2,804
------------- -------------
Operating revenues (1) $541,297 7.3% $504,520
============= =============
Average monthly miles per
tractor 9,742 -3.8% 10,123
Average revenues per total
mile (2) $1.475 3.7% $1.423
Average revenues per loaded
mile (2) $1.696 4.6% $1.621
Average percentage of empty
miles (3) 13.00% 6.5% 12.21%
Average trip length in miles
(loaded) 581 3.0% 564
Total miles (loaded and
empty) (1) 258,329 -3.4% 267,305
Average tractors in service 8,839 0.4% 8,802
Average revenues per tractor
per week (2) $3,317 -0.2% $3,324
Capital expenditures, net (1) $86,464 $69,606
Cash flow from operations (1) $79,674 $41,783
Return on assets (annualized) 7.2% 7.6%
Total tractors (at quarter
end)
Company 8,050 7,960
Owner-operator 810 890
------------- -------------
Total tractors 8,860 8,850
Total trailers (truck and
intermodal, quarter end) 25,330 24,700
Managed containers (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)
Nine Months % of Nine Months % of
Ended Operating Ended Operating
09/30/06 Revenues 09/30/05 Revenues
------------- -------------- ------------- --------------
Operating revenues $1,562,108 100.0 $1,445,571 100.0
------------- -------------- ------------- --------------
Operating expenses:
Salaries, wages and
benefits 445,822 28.5 428,597 29.6
Fuel 298,404 19.1 238,596 16.5
Supplies and maintenance 118,201 7.6 117,125 8.1
Taxes and licenses 87,443 5.6 88,057 6.1
Insurance and claims 64,887 4.2 64,815 4.5
Depreciation 124,796 8.0 121,380 8.4
Rent and purchased
transportation 294,504 18.9 261,505 18.1
Communications and
utilities 14,839 0.9 15,656 1.1
Other (10,647) (0.7) (6,263) (0.4)
------------- -------------- ------------- --------------
Total operating
expenses 1,438,249 92.1 1,329,468 92.0
------------- -------------- ------------- --------------
Operating income 123,859 7.9 116,103 8.0
------------- -------------- ------------- --------------
Other expense (income):
Interest expense 342 0.0 256 0.0
Interest income (3,295) (0.2) (2,600) (0.2)
Other 185 0.0 257 0.0
------------- -------------- ------------- --------------
Total other expense
(income) (2,768) (0.2) (2,087) (0.2)
------------- -------------- ------------- --------------
Income before income taxes 126,627 8.1 118,190 8.2
Income taxes 52,026 3.3 48,483 3.4
------------- -------------- ------------- --------------
Net Income $74,601 4.8 $69,707 4.8
============= ============== ============= ==============
Diluted shares outstanding 79,728 80,713
============= =============
Diluted earnings per share $.94 $.86
============= =============
OPERATING STATISTICS
YTD 06 % Change YTD 05
------------- -------------- -------------
Trucking revenues, net of
fuel surcharge (1) $1,125,261 1.4% $1,109,798
Trucking fuel surcharge
revenues (1) 222,189 40.3% 158,393
Non-trucking revenues,
including VAS (1) 205,068 21.6% 168,648
Other operating revenues (1) 9,590 9.8% 8,732
------------- -------------
Operating revenues (1) $1,562,108 8.1% $1,445,571
============= =============
Average monthly miles per
tractor 9,837 -2.5% 10,085
Average revenues per total
mile (2) $1.462 4.3% $1.402
Average revenues per loaded
mile (2) $1.679 5.4% $1.593
Average percentage of empty
miles (3) 12.92% 7.8% 11.99%
Average trip length in miles
(loaded) 583 2.8% 567
Total miles (loaded and
empty) (1) 769,498 -2.8% 791,697
Average tractors in service 8,692 -0.3% 8,722
Average revenues per tractor
per week (2) $3,320 1.7% $3,263
Capital expenditures, net (1) $128,299 $222,267
Cash flow from operations (1) $226,789 $138,054
Return on assets (annualized) 7.3% 7.4%
Total tractors (at quarter
end)
Company 8,050 7,960
Owner-operator 810 890
------------- -------------
Total tractors 8,860 8,850
Total trailers (truck and
intermodal, quarter end) 25,330 24,700
Managed containers (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)
9/30/06 12/31/05
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $26,945 $36,583
Accounts receivable, trade, less allowance
of $8,752 and $8,357, respectively 241,711 240,224
Other receivables 19,406 19,914
Inventories and supplies 10,646 10,951
Prepaid taxes, licenses and permits 7,879 18,054
Current deferred income taxes 22,007 20,940
Other current assets 24,122 20,966
----------- -----------
Total current assets 352,716 367,632
----------- -----------
Property and equipment 1,601,962 1,555,764
Less - accumulated depreciation 580,744 553,157
----------- -----------
Property and equipment, net 1,021,218 1,002,607
----------- -----------
Other non-current assets 18,270 15,523
----------- -----------
$1,392,204 $1,385,762
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $85,615 $52,387
Current portion of long-term debt - 60,000
Insurance and claims accruals 64,941 62,418
Accrued payroll 23,491 21,274
Other current liabilities 21,494 21,838
----------- -----------
Total current liabilities 195,541 217,917
----------- -----------
Long-term debt, net of current portion 10,000 -
Other long-term liabilities 873 526
Insurance and claims accruals, net of
current portion 99,000 95,000
Deferred income taxes 210,293 209,868
Stockholders' equity:
Common stock, $.01 par value,
200,000,000 shares authorized;
80,533,536 shares issued;
76,825,922 and 79,420,443 shares
outstanding, respectively 805 805
Paid-in capital 104,839 105,074
Retained earnings 841,751 777,260
Accumulated other comprehensive loss (551) (259)
Treasury stock, at cost;
3,707,614 and 1,113,093
shares, respectively (70,347) (20,429)
----------- -----------
Total stockholders' equity 876,497 862,451
----------- -----------
$1,392,204 $1,385,762
=========== ===========
Werner Enterprises, Inc. was founded in 1956 and is a premier
transportation and logistics company, with coverage throughout the
United States, Canada, Mexico and China. Werner maintains its global
headquarters in Omaha, NE with offices throughout North America and
China. Werner is among the five largest truckload carriers in the
United States, with a portfolio of transportation services that includes
medium-to-long-haul, regional and local van capacity, temperature-
controlled, flatbed, dedicated and expedited. Werner's Value Added
Services portfolio includes freight management, truck brokerage,
intermodal, load/mode and network optimization and freight forwarding.
Werner is a licensed NVOCC and provides U.S. customs brokerage services.
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 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.