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Werner Enterprises Reports Third Quarter 2014 Revenues and Earnings

October, 20, 2014

OMAHA, Neb.--(BUSINESS WIRE)--Oct. 20, 2014-- Werner Enterprises, Inc. (NASDAQ:WERN), one of the nation's largest transportation and logistics companies, reported revenues and earnings for the third quarter ended September 30, 2014.

Summarized financial results for third quarter and year-to-date 2014 compared to third quarter and year-to-date 2013 are as follows (dollars in thousands, except per share data):


   
   
   
   




Three Months Ended




Nine Months Ended






September 30,




September 30,






2014     2013

% Change

2014     2013

% Change
Total revenues

$ 551,961

$ 511,728

8%


$ 1,586,103

$ 1,511,263

5%

Trucking revenues, net of fuel surcharge


334,520


321,664

4%



978,067


955,064

2%
Value Added Services (“VAS”) revenues


106,490


96,455

10%



292,145


270,150

8%

Operating income


41,690


32,583

28%



107,461


103,637

4%

Net income


25,970


21,259

22%



65,941


64,610

2%

Earnings per diluted share


0.36


0.29

24%



0.91


0.88

3%

























 

The Company's effective income tax rate for third quarter 2014 was 38.3% which included certain state tax refunds for prior periods. The Company’s effective income tax rate for third quarter 2013 was 35.8% primarily because of favorable tax adjustments for uncertain tax positions. The Company expects its fourth quarter 2014 effective income tax rate to be approximately 40.3%.

Freight demand continued to be strong in third quarter 2014, as it was in second quarter 2014. Freight demand (as measured by our daily morning ratio of loads available to trucks available in our One-Way Truckload network, which includes the medium-to-long-haul Van, Expedited and short-haul Regional fleets) showed consistent strength, and we were overbooked (more available freight than available trucks at the beginning of each business day) throughout third quarter 2014. The freight market dynamics began showing year-over-year improvement for Werner in mid-November 2013, and that favorable trend has continued for the last eleven months, including the first three weeks of October. A tight capacity market combined with a gradually firming economy were the primary contributing factors. Truck capacity is being challenged by an increasingly competitive driver market, trucking company failures and heightened regulatory cost increases for truck ownership and safety; thus, we expect this favorable demand trend relative to constrained supply will continue.

Average revenues per tractor per week, net of fuel surcharge, increased 7.4% in third quarter 2014 compared to third quarter 2013. This compares to year-over-year percentage improvements in average revenues per tractor per week of 1.6% in first quarter 2014 and 4.9% in second quarter 2014. Rate increases for contractual business, continued focus on securing driver friendly, highly productive freight and improved freight selection using our proprietary freight optimization system enabled us to raise our average miles per truck by 5.3% and further reduce our empty miles percentage by 2.2% compared to third quarter 2013. Average revenues per total mile, net of fuel surcharge, increased 2.0% in third quarter 2014 compared to third quarter 2013.

There are several factors that had a positive impact on our average revenues per tractor per week and profitability, while at the same time reduced the percentage increase in our reported revenue per total mile. Our average trip length increased by 6.7% in third quarter 2014 compared to third quarter 2013, and longer length of haul shipments generally have a lower rate per mile due to productivity benefits. Noting the improved freight market in third quarter 2014 compared to third quarter 2013, during third quarter 2014 we accepted less brokerage freight (in which rates are inclusive of fuel) and instead supported our customers with additional capacity priced with a base rate per mile and a fuel surcharge per mile. Finally, customer changes in fuel surcharge programs had a neutral impact on profitability but an adverse effect on reported revenue per total mile. A few large customers modified their fuel surcharge programs to a "zero peg" in the last 12 months, which shifted revenues from base rates to fuel surcharges.

We made good progress implementing sustainable rate increases with our customers during third quarter 2014. These efforts are expected to continue as we move forward and work to recoup the cost increases associated with more expensive equipment, a shrinking supply of qualified drivers and an increasingly challenging regulatory environment. Strategic customers understand the collective capacity and service challenges facing our company and our industry and are increasingly supportive of Werner's ongoing initiatives to provide sustainable transportation solutions in support of their supply chain needs.

In third quarter 2014, we averaged 6,974 trucks in service in the Truckload segment and 50 intermodal drayage trucks in the VAS segment. We ended the quarter with 7,060 trucks in the Truckload segment and 55 intermodal drayage trucks in the VAS segment. Our Specialized Services unit, primarily Dedicated, ended the quarter with 3,655 trucks (or 52% of our total Truckload segment fleet).

Diesel fuel prices were 20 cents per gallon lower in third quarter 2014 than in third quarter 2013 and were 16 cents per gallon lower than in second quarter 2014. For the first 20 days of October 2014, the average diesel fuel price per gallon was 37 cents lower than the average diesel fuel price per gallon in the same period of 2013 and 34 cents lower than in fourth quarter 2013. The components of the Company's total fuel cost consist of and are recorded in our income statement as follows: (i) Fuel (fuel expense for company trucks excluding federal and state fuel taxes); (ii) Taxes and Licenses (federal and state fuel taxes); and (iii) Rent and Purchased Transportation (fuel component of our independent contractor costs, including the base cost of fuel and additional fuel surcharge reimbursement for costs exceeding the fuel base).

Capacity in the truckload industry remains constrained by economic and safety regulatory factors. It is very costly for many smaller and medium size private carriers to replace their older, lower-value trucks with much more expensive, EPA-compliant new trucks, which significantly reduces the risk of trucks being added to the market. We continue to invest in equipment solutions including more aerodynamic truck features, idle reduction systems, tire inflation systems and trailer skirts to improve the mile per gallon efficiency of our fleet. As we noted in our second quarter 2014 earnings release on July 21, 2014, we increased our capital expenditure guidance for the second half of 2014 to begin to lower the average age of our truck fleet. Net capital expenditures in third quarter 2014 were $84.0 million and were $146.8 million year-to-date in 2014. We estimate net capital expenditures for the full year 2014 to be in the range of $210 to $230 million. The average age of our truck fleet as of September 30, 2014, was 2.3 years. We remain committed to investing in a best in class fleet for the benefit of our customers, our drivers and the Werner brand.

The driver recruiting and retention market was very difficult during third quarter 2014. During July and the first half of August, our driver and truck counts declined from June. We increased pay by varying percentage amounts for many drivers in certain fleets within our One-Way Truckload unit in mid-August 2014. Following these changes, our driver recruiting and retention metrics improved. Additionally over the last several months, we increased driver pay in multiple Dedicated fleets, almost always after obtaining rate increases from these customers. However, significant problematic market factors remain including a declining number of, and increased competition for, driver training school graduates, a gradually declining national unemployment rate and job competition from the housing construction, manufacturing and hydraulic fracturing markets. We expect that competition for drivers will remain high in the coming months.

Gains on sales of assets were $4.5 million in third quarter 2014. This compares to gains on sales of assets of $2.7 million in third quarter 2013 and $5.2 million in second quarter 2014, which included a $1.6 million gain from the sale of real estate. In third quarter 2014, we realized higher average gains per truck and sold more trucks and trailers compared to third quarter 2013. Gains on sales of assets are reflected as a reduction of Other Operating Expenses in our income statement.

To provide shippers with additional sources of managed capacity and network analysis, we continue to develop our non-asset-based VAS segment. VAS includes Brokerage, Freight Management, Intermodal and Werner Global Logistics (International).


   
   



Three Months Ended

Nine Months Ended



September 30,

September 30,



2014     2013

2014     2013

Value Added Services (amounts in thousands)



$     %

$     %

$     %

$     %
Operating revenues

$ 106,490

100.0

$ 96,455

100.0

$ 292,145

100.0

$ 270,150

100.0
Rent and purchased transportation expense

  93,762

88.0

  81,958

85.0

  253,525

86.8

  227,410

84.2
Gross margin


12,728

12.0


14,497

15.0


38,620

13.2


42,740

15.8
Other operating expenses

  11,706

11.0

  10,304

10.7

  33,488

11.4

  30,445

11.2
Operating income

$ 1,022

1.0

$ 4,193

4.3

$ 5,132

1.8

$ 12,295

4.6




























 

In third quarter 2014, VAS revenues increased $10.0 million or 10%, and operating income dollars decreased $3.2 million or 76%, compared to third quarter 2013. The increase in VAS revenues was due primarily to growth in Brokerage and Werner Global Logistics revenues. Operating income was impacted by a lower gross margin percentage for contractual business due to rising third party carrier costs, as capacity was tighter during third quarter 2014 compared to third quarter 2013. In addition, the Company's gross margin percentage continues to be impacted negatively by the startup of a large customer during second quarter 2014. Gross margins for this customer are being impacted by regional carrier capacity issues that are currently being addressed with the customer. VAS operating income declined in third quarter 2014 from third quarter 2013 due primarily to a lower gross margin percentage. However, the gross margin percentage improved sequentially from July to September 2014.

Comparisons of the operating ratios for the Truckload segment (net of fuel surcharge revenues of $88.8 million and $87.6 million in third quarters 2014 and 2013, respectively, and $268.6 million and $267.7 million in the year-to-date 2014 and 2013 periods, respectively) and the VAS segment are shown below.


   
   
   
   



Three Months Ended




Nine Months Ended





September 30,




September 30,


Operating Ratios



2014     2013

Difference

2014     2013

Difference
Truckload Transportation Services

88.5%


91.7%


(3.2)%


90.1%


91.2% %

(1.1)%
Value Added Services

99.0%


95.7%


3.3%


98.2%


95.4% %

2.8%
























 

Fluctuating fuel prices and fuel surcharge collections impact the total company operating ratio and the Truckload segment's operating ratio when fuel surcharges are reported on a gross basis as revenues versus netting against fuel expenses. Eliminating fuel surcharge revenues, which are generally a more volatile source of revenue, provides a more consistent basis for comparing the results of operations from period to period. The Truckload segment's operating ratios for third quarter 2014 and third quarter 2013 are 90.9% and 93.4%, respectively, and for year-to-date 2014 and 2013 are 92.2% and 93.1%, respectively, when fuel surcharge revenues are reported as revenues instead of a reduction of operating expenses.

Our financial position remains strong. As of September 30, 2014, we had $75.0 million of debt outstanding and $804.5 million of stockholders' equity. During third quarter 2014, the Company purchased 200,000 shares of its common stock for a total cost of $5.0 million.


   



INCOME STATEMENT



(Unaudited)



(In thousands, except per share amounts)




   
   
   
   



Three Months Ended

Nine Months Ended



September 30,

September 30,



2014     2013

2014

2013



$     %

$     %

$

%

$

%
Operating revenues

$ 551,961  

100.0

$ 511,728  

100.0  

$ 1,586,103  

100.0  

$ 1,511,263  

100.0  
Operating expenses:























Salaries, wages and benefits


149,206


27.0


137,834


26.9



428,425


27.0



406,175


26.9
Fuel


86,820


15.7


92,890


18.2



270,026


17.0



279,874


18.5
Supplies and maintenance


48,527


8.8


46,538


9.1



140,268


8.8



133,600


8.8
Taxes and licenses


21,420


3.9


21,548


4.2



63,563


4.0



64,758


4.3
Insurance and claims


19,789


3.6


16,714


3.3



59,175


3.7



53,835


3.6
Depreciation


44,182


8.0


42,612


8.3



131,878


8.3



127,310


8.4
Rent and purchased transportation


133,893


24.2


117,651


23.0



373,778


23.6



339,029


22.4
Communications and utilities


3,689


0.7


3,754


0.7



10,597


0.7



10,083


0.7
Other

  2,745  

0.5

  (396) )

(0.1) )

  932  

0.1  

  (7,038%) )

(0.5)
Total operating expenses

  510,271  

92.4

  479,145  

93.6  

  1,478,642  

93.2  

  1,407,626  

93.1  
Operating income

  41,690  

7.6

  32,583  

6.4  

  107,461  

6.8  

  103,637  

6.9  
Other expense (income):





Interest expense


140





101






370






336



Interest income


(614)





(589)


(0.1)



(1,929)


(0.1)



(1,629)


(0.1)
Other

  43  



  (35)


 

  2  

 

  (127)


 
Total other expense (income)

  (431)




  (523)


(0.1)


  (1,557)


(0.1)


  (1,420)


(0.1)
Income before income taxes


42,121


7.6


33,106


6.5



109,018


6.9



105,057


7.0
Income taxes

  16,151  

2.9

  11,847  

2.3  

  43,077  

2.7  

  40,447  

2.7  
Net income

$ 25,970  

4.7

$ 21,259  

4.2  

$ 65,941  

4.2  

$ 64,610  

4.3  
























 
Diluted shares outstanding

  72,364  




  73,216  




  72,706  




  73,530  


Diluted earnings per share

$ 0.36  




$ 0.29  




$ 0.91  




$ 0.88  


































 

   



SEGMENT INFORMATION



(Unaudited)



(In thousands)




   






Three Months Ended

Nine Months Ended



September 30,

September 30,



2014     2013

2014     2013

Revenues













Truckload Transportation Services

$ 428,619


$ 412,673


$ 1,261,194


$ 1,234,442
Value Added Services


106,490



96,455



292,145



270,150
Other


16,868



3,368



33,115



7,495
Corporate

  688  

  1,021  

  2,075  

  2,667  
Subtotal


552,665



513,517



1,588,529



1,514,754
Inter-segment eliminations (1)

  (704)


  (1,789)


  (2,426)


  (3,491)
Total

$ 551,961  

$ 511,728  

$ 1,586,103  

$ 1,511,263  












 

Operating Income













Truckload Transportation Services

$ 39,138


$ 27,101


$ 98,238


$ 85,158
Value Added Services


1,022



4,193



5,132



12,295
Other


404



949



1,245



3,477
Corporate

  1,126  

  340  

  2,846  

  2,707  
Total

$ 41,690  

$ 32,583  

$ 107,461  

$ 103,637  


















 

(1) Inter-segment eliminations represent transactions between reporting segments that are eliminated in consolidation.


   



OPERATING STATISTICS BY SEGMENT



(Unaudited)




   
   
   



Three Months Ended    


Nine Months Ended





September 30,




September 30,





2014     2013

% Change

2014

2013

% Change

Truckload Transportation Services segment



















Average percentage of empty miles


12.04%



12.31%


(2.2)%


12.05%



12.76%


(5.6)%
Average trip length in miles (loaded)


475



445


6.7%


469



450


4.2%
Average tractors in service


6,974



7,200


(3.1)%


7,011



7,164


(2.1)%

Average revenues per tractor per week (1)



$ 3,690


$ 3,436


7.4%

$ 3,577


$ 3,418


4.6%
Total trailers (at quarter end)


22,005



22,055






22,005



22,055



Total tractors (at quarter end)

















Company


6,395



6,565






6,395



6,565



Independent contractor

  665  

  680  




  665  

  680  


Total tractors


7,060



7,245






7,060



7,245





















 

Value Added Services segment



















Total VAS shipments


74,579



71,210


4.7%


211,531



205,959


2.7%
Less: Non-committed shipments to truckload segment

  19,004  

  19,196  

(1.0)%

  55,664  

  58,553  

(4.9)%
Net VAS shipments

  55,575  

  52,014  

6.8%

  155,867  

  147,406  

5.7%
Average revenue per shipment

$ 1,753  

$ 1,645  

6.6%

$ 1,723  

$ 1,651  

4.4%


















 
Average tractors in service


50



46






48



44



Total trailers (at quarter end)


1,750



1,715






1,750



1,715



Total tractors (at quarter end)


55



50






55



50





























 

(1) Net of fuel surcharge revenues.


   



SUPPLEMENTAL INFORMATION



(Unaudited)



(In thousands)




   
   



Three Months Ended

Nine Months Ended



September 30,

September 30,



2014     2013

2014

2013
Capital expenditures, net

$ 84,032


$ 71,939


$ 146,839


$ 106,468
Cash flow from operations


74,666



60,183



165,211



171,091
Return on assets (annualized)


7.4%



6.4%



6.4%



6.5%
Return on equity (annualized)


13.0%



11.4%



11.2%



11.7%




















 

   



CONDENSED BALANCE SHEET



(In thousands, except share amounts)




   



September 30,

December 31,



2014

2013



(Unaudited)








 
ASSETS





Current assets:





Cash and cash equivalents

$ 47,598


$ 23,678
Accounts receivable, trade, less allowance of $10,307 and $9,939, respectively


264,406



231,647
Other receivables


22,244



10,769
Inventories and supplies


15,167



15,743
Prepaid taxes, licenses and permits


6,503



15,064
Current deferred income taxes


26,668



25,315
Other current assets

  31,522  

  27,445  
Total current assets

  414,108  

  349,661  






 
Property and equipment


1,764,972



1,727,737
Less – accumulated depreciation

  771,188  

  750,219  
Property and equipment, net

  993,784  

  977,518  






 
Other non-current assets

  41,489  

  26,918  
Total assets

$ 1,449,381  

$ 1,354,097  






 
LIABILITIES AND STOCKHOLDERS’ EQUITY





Current liabilities:





Accounts payable

$ 89,073


$ 66,678
Insurance and claims accruals


65,070



59,811
Accrued payroll


32,256



22,785
Other current liabilities

  20,388  

  18,457  
Total current liabilities

  206,787  

  167,731  






 
Long-term debt, net of current portion


75,000



40,000
Other long-term liabilities


19,667



14,710
Insurance and claims accruals, net of current portion


130,825



131,900
Deferred income taxes


212,632



227,237






 
Stockholders’ equity:





Common stock, $.01 par value, 200,000,000 shares authorized; 80,533,536 shares issued; 71,756,576 and 72,713,920 shares outstanding, respectively




805



805
Paid-in capital


102,792



98,534
Retained earnings


885,978



830,842
Accumulated other comprehensive loss


(5,947)



(4,631)
Treasury stock, at cost; 8,776,960 and 7,819,616 shares, respectively

  (179,158)


  (153,031)
Total stockholders’ equity

  804,470  

  772,519  
Total liabilities and stockholders' equity

$ 1,449,381  

$ 1,354,097  










 

Werner Enterprises, Inc. was founded in 1956 and is a premier transportation and logistics company, with coverage throughout North America, Asia, Europe, South America, Africa and Australia. Werner maintains its global headquarters in Omaha, Nebraska and maintains offices in the United States, Canada, Mexico, China and Australia. Werner is among the five largest truckload carriers in the United States, with a diversified portfolio of transportation services that includes dedicated van, temperature-controlled and flatbed; medium-to-long-haul, regional and local van; and expedited services. Werner's Value Added Services portfolio includes freight management, truck brokerage, intermodal, and international services. International services are provided through Werner's domestic and global subsidiary companies and include ocean, air and ground transportation; freight forwarding; and customs brokerage.

Werner Enterprises, Inc.'s common stock trades on The NASDAQ Global Select MarketSM under the symbol “WERN”. For further information about Werner, visit the Company's website at www.werner.com.

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Such forward-looking statements are based on information presently available to the Company's management and are current only as of the date made. Actual results could also differ materially from those anticipated as a result of a number of factors, including, but not limited to, those discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.

For those reasons, undue reliance should not be placed on any forward-looking statement. The Company assumes no duty or obligation to update or revise any forward-looking statement, although it may do so from time to time as management believes is warranted or as may be required by applicable securities law. Any such updates or revisions may be made by filing reports with the U.S. Securities and Exchange Commission, through the issuance of press releases or by other methods of public disclosure.

Source: Werner Enterprises, Inc.

Werner Enterprises, Inc.
John J. Steele, 402-894-3036
Executive Vice President, Treasurer and Chief Financial Officer

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