Frozen Food Express Industries today, March 6, announced its financial and operating results for the three- and 12-month periods ended Dec. 31.
For the fourth quarter of 2006, freight revenue was $112.4 million, as compared to $139.8 million during the same quarter of 2005. Of the decline in freight revenue, 16 percent resulted from lower fuel surcharges, and 25 percent was due to the absence during 2006 of revenue related to hurricane-relief efforts that was present during the fourth quarter of 2005. During the fourth quarter of 2006, freight revenue also was impacted negatively by industrywide excess capacity relative to customer demand for freight services as compared to the same quarter of 2005.
Net income for the fourth quarter of 2006 was $4.3 million, down from $6.4 million for the fourth quarter of 2005. As previously reported, in December 2006 the company completed the sale of the remaining half of one of its life insurance investments, resulting in a nontaxable gain of $5.1 million.
During the fourth quarter of 2006, the company incurred a $690,000 loss from its freight operations versus income from freight operations of $9.4 million in the fourth quarter of 2005, which was the best quarter in the company’s 60-plus year history, due in large part to about $7.0 million in revenue associated with transportation services and trailer rentals for disaster relief activities in the wakes of hurricanes Katrina and Rita.
Fourth-quarter 2006 operating results were impacted negatively by severance pay related to the company’s ongoing headcount reduction efforts, as well as lower equipment utilization rates. Like many trucking companies, during the latter half of 2006, FFEX accelerated its acquisition of newly-manufactured semi-tractors in order to avoid uncertainties and incremental costs associated with trucks placed into service after 2006.
“We knew the fourth quarter was going to be slow, and our revenue results certainly reflected that,” said Stoney M. “Mit” Stubbs, president and chief executive officer of Dallas-based FFEX. “The pre-buy of tractors during the latter half of 2006, together with most companies having their trucks fully seated with drivers, resulted in too many trucks chasing the reduced amount of available freight. Utilization and asset productivity rates were down in all major categories.
“Most industry analysts predict that for the first part of 2007, the excess freight capacity will continue to challenge trucking companies,” Stubbs said. “Our preliminary first quarter 2007 revenue and asset utilization forecasts across all of our service lines reflect those challenges. We are cautiously optimistic, however, that as shippers’ inventory levels bottom out later in 2007, also as predicted, the excess capacity currently plaguing our industry will become more in balance with increased freight demand levels. Beyond the first part of 2007, this should help our overall asset utilization and equipment productivity, resulting in improving margins during the latter half of 2007.
“That being said, we are confident that we are making progress in our long-term strategies to cut our overhead, improve nondriver employee productivity and to continue to optimize our freight network to improve efficiency and utilization of our core revenue-producing assets,” Stubbs said.
For the 12 months ended Dec. 31, freight revenue was $483.7 million, as compared to $514.0 million during the 12-month period of 2005. Freight revenue during 2006 included fuel surcharge revenue of $75.1 million, compared to $63.5 million during 2005.
Income from freight operations for the year decreased to $11.6 million from $29.7 million for 2005. Contributing factors — other than the loss of revenue to the decline in operating income during 2006 as compared to the same period of 2005 — were costs associated with hiring and retaining qualified drivers in a tight labor market, as well as lower gains on the sale of equipment. Net income for the year ended Dec. 31 was $11.2 million as compared to $20.4 million during 2005.
“As the market slowed, we continued to experience pricing pressure from customers of our truckload operation,” Stubbs said. “We are working to position our company so that we can support an expense base that enables us to offer attractive pricing while improving margins. Our main focus is on the bottom line. We must continue to work toward improved profitability, even if we have to walk away from less rewarding revenue in the short term. And we should come out of the other side of this capacity bubble with a company that is better able to compete and prosper in any operating environment.”