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BY JOHN SHIPMAN AND PAUL VIGNA
Similar to airline and railroad companies, trucking firms are churning out improved earnings on the back of large cuts in capacity, an uptick in demand and better pricing.J.B. Hunt Transport Services Inc. said second-quarter demand had "increased fairly dramatically," and called evidence of the industry's tighter capacity "quite pronounced." Second-quarter revenue increased 22% from a year earlier, while operating income rose 34%, excluding an asset write-down last year. Average pricing, while still below year-ago levels, was up 2% from the first quarter, the company said.
Bob Costello, chief economist at the American Trucking Association said truckloads fell 24% from a peak in March 2008 to an April 2009 trough, while the number of trucks on the road fell 14%. Since then, loads have rebounded about 9%, he said, eliminating a good chunk of overhanging capacity.
Even as demand perks up, some truckers don't seem to be in any hurry to add capacity, particularly as pricing, while improved, still wallows at low levels.
Covenant Transportation Group Inc. finance chief Richard Cribbs said during a conference call that "thousands upon thousands of trucks have left the marketplace. And there's nobody that's going out here and buying a bunch of trucks to get in this business."
Covenant's second-quarter freight revenue, excluding fuel surcharges, was up 9.4% from a year ago. Profit was $2.9 million compared with a $3.1 million loss last year. Chief Operating Officer Joey Hogan said freight volume improved enough during the quarter to implement some spot and contractual price increases.
Knight Transportation Inc. reported net income climbed 26% from a year earlier on a 7.6% gain in revenue before fuel surcharges. CEO Kevin Knight said the company is "making progress" on improving contract pricing, and if contract rates and operating ratio continue to rise, it will add between 100 and 150 vehicles to the road in the second half. Knight nearly doubled its second-quarter capital expenditures, to $32.1 million.
USA Truck Inc., of Van Buren, Ark., is spending to save. It plans to put about 285 new tractors into service between now and October in a move to lower maintenance costs. The company bought the rigs earlier this year, and said it also plans to buy another 300 to 500 tractors to put into service between November and May 2011. Each new tractor will be offset by selling an existing one.
Not every trucking company is as willing to spend. Arkansas Best Corp. Chief Executive Judy McReynolds said last week that the company would spend more "as we [gain] some more certainty" surrounding improvements in the economy. She noted that "we can use rented equipment and other means" to handle more business short term, "and try to assess whether that's going to be permanent or not before we actually bring back more fixed cost."
The economy's recent weakening could complicate the picture. "We are decelerating to a period of hopefully sustainable but slower growth," the ATA's Mr. Costello said. A slowdown in traffic is already evident among railroads: Weekly carloadings are down more than 5% from a recent peak in late April.
"There are still improvements, definite improvements that need to occur in the economy, in the retail sector, in the housing market," Ms. McReynolds said. "I hope that where we are is that those things will go north rather than south. But we just don't know."
The Upshot comments on corporate earnings trends.
Write to Paul Vigna at paul.vigna@dowjones.com and John Shipman at john.shipman@dowjones.com
Trucking Revival Picks Up Speed - WSJ.com
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