Saia took on big volumes, higher costs in Q3

Saia Inc. drank from an LTL fire hose in the third quarter, taking on huge volumes in the wake of Yellow Corp.’s demise and driving up its costs and operating ratio.

Investors chose to focus on the higher costs and not the record revenue and the increases in tonnage, shipments and yield per hundredweight. As of midday Friday, shares of the Johns Creek, Georgia-based LTL carrier were down 7.3% to $349.48 per share. 

Saia (NASDAQ: SAIA) reported third-quarter revenue of $775 million, a record for any quarter in its history. Shipments per workday soared 12.2%, led by an almost overnight surge in traffic following Yellow’s shutdown in late July. Shipments per workday in July alone rose 10% from June levels. 

Tonnage per workday rose 6.7% from year-earlier levels, while revenue per every 100 pounds transported, excluding fuel surcharges, rose 8.4% year over year (y/y). Revenue per shipment was up 3%. Diluted earnings per share of $3.67 was flat y/y but beat analysts’ estimates by 5 cents to 8 cents per share, depending on the source of the information.

The sudden volume spike required Saia to quickly add resources. It hired 1,000 employees in the quarter, 400 of them drivers. Wages and benefits rose 16% y/y from a combination of head count growth and a 4.1% average wage increase in July. Total operating increases in the quarter grew by 7.6% despite substantially higher labor costs, Saia said. It did not comment on how many, or if any, of the new drivers came from Yellow’s ranks.

As a result of the increased expenses, Saia’s OR — defined as the ratio of expenses to revenues — rose to 83.4% in the quarter from 82.7% sequentially and 82.4% in the third quarter of 2022. Company executives said that the ratio came down through the 2023 quarter as the company brought its costs and the higher revenue levels into better alignment. At its highest levels in the quarter, the OR had hit 86%. 

Saia typically experiences a 200 basis point OR deterioration in the fourth quarter. Executives said they hope the fourth-quarter degradation will be in the 150 to 200 basis point range.

Saia is also working to lessen its reliance on expensive purchased transportation and to replace rented equipment with its own assets, executives said. The company said it experienced a very short-term bump in volume following a cyberattack that hit rival Estes Express earlier this month.

President and CEO Fritz Holzgrefe said he was confident that Saia can eventually drive down its OR into the 70% range. He did not specify a time frame.

Shipment and tonnage growth remained strong leaving the third quarter and entering the fourth. Shipments in September rose 16% y/y, while tonnage grew by 9.7%. In October, shipments jumped 18.6% while tonnage climbed 8.4%.

Holzgrefe told analysts Friday morning that many Yellow customers were also using Saia, so the shipment migration was facilitated relatively smoothly. The amount of former Yellow business that Saia retains will depend on whether shippers are looking for low-quality service at cheaper rates or a superior service that may come at a higher price, he said, noting that those looking for the former will likely “move on.” 

Saia earlier this week announced a 7.5% general rate increase to take effect Dec. 4. Company executives said they have plenty of runway for firmer pricing during contract renewals as more shippers embrace the long-term value of Saia’s service. 

The company said it would consider bidding on Yellow’s terminals if it meets long-term network objectives. Saia has 197 terminals and is expecting to add its 198th by the end of the year.

Holzgrefe was cautious about the macro freight environment, saying it “remains uncertain.” He said that Saia has detected a bit of customer optimism but that the “waters remain choppy.”