Not the Time to Own a Truck

Yahoo! Finance reports:

C.H. Robinson Worldwide Inc., (CHRW - Annual Report) which provides transportation and logistics services, said Tuesday third-quarter earnings grew 30 percent as gross profit grew across all segments. Revenue rose 15 percent to $1.71 billion, from $1.49 billion last year.

Like Landstar (LSTR - Annual Report), CH Robinson is a trucking company that doesn’t own trucks. Instead, it relies on independent truck owners to carry the loads it sources.  And like Landstar it was able to turn a nice revenue increase into an equally nice earnings increase (for Landstar we are talking about revenues excluding their hurricane relief efforts last year). This contrasts with traditional truckers like Arkansas Best (ABFS) which increased revenue by 11% but had its shares beaten up when the company reported that volume was slowing.

CH Robinson shares are up in after-hours trading though they also saw the volume slowdown. In their press release they noted:

Our growth in truck net revenues slowed as the quarter progressed. While gross profit margins were consistent throughout the quarter, volume growth slowed. A significant amount of the volume in the second half of 2005 was driven by a robust spot market. In the third quarter and through the first three weeks of October 2006, we have not seen the same level of spot market demand.

The thing is, trucks are expensive. When they sit idle, the owner still has to make payments on it (even if only in the form of non-cash depreciation expense.) Maintenance costs also don’t entirely go away, though they are reduced some. When revenue slows down or drops, the fixed portion of maintaining a vehicle fleet weighs on earnings.

For the non-asset based transportation providers like Landstar or CH Robinson, these expenses fall to the independent contractors. So while there may be less profit due to less revenue it will still be more profit than there would have been if they had to maintain a fleet.

Photo: Clearance 12 feet 4 inches, originally uploaded by Beige Alert.

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Topics: Arkansas Best (ABFS), CH Robinson Worldwide (CHRW), Economy, Landstar Systems (LSTR), Stock Market, Technology | RSS

One Comment on “Not the Time to Own a Truck”

  1. [...] We told you now is not the time to own a truck.  Continuing the trend this earnings season, truck-owning YRC Worldwide (formerly known as Yellow) expects margins to be hurt by a slowdown in shipping. YRC Worldwide 3Q Profit Rises 12 Percent: Financial News – Yahoo! Finance Transportation company YRC Worldwide Inc., whose brands include Yellow Transportation and Roadway, said Thursday its third-quarter profit rose 12 percent on lower expenses, as revenue edged up 3 percent.But the company issued a disappointing outlook, sending its shares down 41 cents to $38.79 in aftermarket trading. They closed up 39 cents at $39.20 in regular Nasdaq trading. [...]

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