Swift Transportation Co. on Wednesday, Jan. 24, reported its results for the fourth quarter and full year ended Dec. 31. “The quarter reflects one of the most challenging freight environments in recent memory, and the normal holiday surge did not materialize for a variety of reasons,” said Robert W. Cunningham, chief executive officer and president of Phoenix-based Swift.
Fourth-quarter net earnings were $23.4 million in 2006 compared to $39.3 million in 2005. Fourth-quarter 2006 results include a pre-tax impairment charge of $18.4 million for the write-off of a note receivable and other outstanding amounts related to the company’s sale of its auto haul business in April 2005. Excluding this impairment and the pre-tax benefit of the change in market value of an interest rate derivative of $223,000 in the fourth quarter of 2006 and $665,000 in the fourth quarter of 2005, adjusted net earnings were $35.0 million for the fourth quarter of 2006 compared to $38.9 million for the fourth quarter of 2005.
Operating revenue for the fourth quarter 2006 decreased 7.2 percent to $783 million from $844 million for the fourth quarter of 2005. Excluding fuel surcharge revenue, net revenue decreased 5.1 percent to $679 million in 2006 from $716 million in 2005. This decline was primarily attributable to the soft freight environment and an increase in truckload capacity.
“We were also impacted by the downturn in the housing and automotive markets, and the increase in Class 8 truck builds prior to the new 2007 EPA requirements, both of which added capacity to the market,” Cunningham said. “As a result, loaded miles per tractor per week dropped 9.1 percent and deadhead increased to 13.2 percent in the fourth quarter. These reductions were partially offset by a 2.9 percent increase in revenue per loaded mile.”
Cunninghams said that despite the recent freight environment, Swift made improvements in its recruiting and retention efforts, which have reduced its unmanned truck count to a historical low. “On January 17, we awarded another safe driver with $1 million as part of our second ‘Thanks a Million!’ driver appreciation campaign,” Cunningham said. “We also increased driver wages in October, and we continue to identify and implement other improvements to further enhance the productive and safe work environment we have at Swift.”
The company’s operating ratio was 95.7 percent for the fourth quarter in 2006 compared to 91.5 percent for the fourth quarter in 2005. The impairment of the note receivable mentioned above, the soft freight environment, the increase in capacity, the changes made to the company’s depreciable lives for tractors and the net impact of fuel expense are the primary causes for the increase in the operating ratio, the company said.
For the full year, net earnings increased 39.5 percent to $141.1 million in 2006 compared to $101.1 million in 2005. The results for 2006 include a pre-tax impairment charge of $18.4 million for the write-off of a note receivable and other outstanding amounts related to the company’s sale of its auto haul business in April 2005. Excluding this impairment, the impact of the change in market value of the interest rate derivatives of $1.1 million in 2006 and $3.3 million in 2005, and the other items noted in the reconciliation table that were disclosed previously, adjusted net earnings for 2006 increased 39.4 percent to $151.6 million compared to $108.8 million in 2005.
Operating revenue for 2006 decreased 0.8 percent to $3.17 billion from $3.20 billion in 2005. Excluding fuel surcharge revenue, net revenue decreased 3.4 percent to $2.71 billion in 2006 from $2.81 billion in 2005. This decline was attributable primarily to a 5.3 percent reduction in the average fleet size year over year. Improvements in the utilization of the average operating fleet in the first half of 2006 were negatively impacted in the second half of 2006 by the soft freight environment and resulted in a 3.3 percent decline in loaded miles per tractor per week for the full year. These declines were partially offset by the 3.6 percent increase in revenue per loaded mile, excluding fuel surcharge revenue.
Swift said an increased focus on cost control helped the company improve its operating ratio by 180 basis points to 92.3 percent in 2006 from 94.1 percent in 2005. The company’s adjusted operating ratio improved to 91.8 percent in 2006 compared to 93.5 percent in 2005. In addition, the company’s effective tax rate for the full year 2006 is 36.3 percent as compared to the tax rate estimated through the nine months ended Sept. 30 of 38.8 percent, with the difference reducing the fourth-quarter effective tax rate.
As previously announced, Swift has agreed to be acquired by Jerry Moyes, Swift’s founder and former chairman and CEO, in an all-cash transaction valued at about $2.74 billion including the assumption of about $332 million of net debt. The board of directors believes that this is a compelling transaction in the best interest of shareholders.