Saia, Inc. (NASDAQ:SAIA), the leading national less-than-truckload (LTL) carrier, reported its second-quarter 2024 financial results, showcasing resilience in the face of a shifting freight landscape. The company's revenue for the quarter reached $823.2 million, a commendable 18.5% increase from the same period in the prior year. This robust top-line performance was driven by a 9.7% rise in LTL tonnage and an 8.7% improvement in yield, excluding fuel surcharge.
Despite the top-line growth, Saia's second-quarter operating income of $137.6 million represented a 14.4% increase year-over-year, with the operating ratio deteriorating slightly to 83.3% from 82.7% in the prior-year quarter. The company attributed this margin pressure to a mix shift towards lower-weight, retail-focused freight, as well as the costs associated with opening eight new terminals and relocating two others during the quarter.
For the first six months of 2024, Saia reported annual revenue of $1.6 billion, a 16.4% increase compared to the same period in 2023. Net income for the first half of 2024 reached $193.2 million, up from $167.4 million in the prior-year period. Operating cash flow for the first six months of 2024 was $237.2 million, while free cash flow amounted to $138.1 million.
Business Overview
Saia is a leading provider of national LTL services, operating a single integrated organization that serves 46 states. While the majority of its revenue, over 97%, is derived from LTL shipments, the company also offers a range of other value-added services, including non-asset truckload, expedited transportation, and logistics solutions across North America.
The company's strategy focuses on improving profitability by increasing yield while also growing volumes. This is achieved through initiatives to build density in existing geographies and pursue geographic and terminal expansion to promote profitable growth and enhance the customer value proposition over time.
Saia's business is highly correlated to the non-service sectors of the general economy, and the company's performance is influenced by a variety of factors, including shipment volumes, pricing, cost management, and the availability of qualified personnel and equipment.
Freight Mix Shift and Terminal Expansion Weigh on Margins
During the second quarter, Saia experienced a shift in its freight mix, with a larger proportion of national account and retail-focused freight, which typically has a shorter length of haul and lower weight per shipment. This change in the freight profile resulted in a margin headwind of approximately 150 to 200 basis points compared to the prior-year quarter.
Additionally, the company's investments in its network expansion strategy, which included opening eight new terminals and relocating two others during the quarter, created a 130-basis-point drag on the operating ratio. These new facilities, which are critical to Saia's long-term growth strategy, initially operate at higher cost structures as the company onboards and trains new employees to maintain its high service standards.
Fritz Holzgrefe, Saia's President and CEO, emphasized the importance of these network investments, stating, "The important thing is, you've got to open these facilities so when the economy comes back ... we're in a footprint that we can take advantage of it. This thing scales at that point."
Pricing Initiatives and Cost Management
Despite the headwinds from the freight mix shift and terminal openings, Saia remained focused on its pricing initiatives. The company reported an 8.4% average price increase on contractual renewals during the second quarter, compared to a 9.2% increase in the first quarter. Management noted that while renewals do not carry volume commitments, the company remains committed to securing appropriate pricing to support its investments and maintain profitability.
On the cost management front, Saia's team executed well, with cost per shipment increasing by only 1.1% year-over-year and declining 2.5% sequentially from the first quarter. This highlights the company's efforts to optimize its operations in the face of the challenging environment.
Outlook
Looking ahead, Saia expects the third-quarter operating ratio to deteriorate by 100 to 200 basis points sequentially, primarily due to the continued impact of new terminal openings. For the full year, the company has withdrawn its previous guidance of 100 to 150 basis points of operating ratio improvement, and now expects a flat year-over-year result.
Despite the near-term margin pressure, Saia remains committed to its long-term growth strategy. The company plans to open an additional 10 to 13 new terminals in the second half of 2024, bringing its total network to 214 locations by the end of the year. This expansion is supported by a capital expenditure plan of approximately $1 billion for 2024, which includes $550 million for real estate investments, $400 to $450 million for equipment, and $50 million for IT projects.
Financials
Saia's balance sheet remains strong, with $11.2 million in cash and cash equivalents as of June 30, 2024. The company has access to a $300 million revolving credit facility, of which $67.0 million was outstanding at the end of the quarter, providing ample liquidity to fund its growth initiatives.
For the first six months of 2024, Saia generated $237.2 million in net cash from operating activities and $138.1 million in free cash flow. This financial flexibility allows the company to invest in its network expansion while maintaining a disciplined approach to capital allocation.
Risks and Challenges
Saia's business is subject to various risks and challenges, including economic conditions, industry competition, cost and availability of labor and equipment, fuel price fluctuations, and regulatory changes. The company's performance is closely tied to the non-service sectors of the economy, and a prolonged downturn could impact freight volumes and pricing.
Additionally, the successful execution of Saia's growth strategy, including the integration of new terminals and the optimization of its freight mix, will be critical to maintaining its competitive edge and delivering long-term shareholder value.
Conclusion
Saia's second-quarter results demonstrate the company's ability to navigate a dynamic freight environment, with solid top-line growth and a focus on pricing and cost management. While the near-term margin pressure from the freight mix shift and terminal expansion investments is a headwind, Saia's long-term strategy of building a comprehensive national network positions the company for continued success as the economy evolves.
With a strong balance sheet, ample liquidity, and a disciplined approach to capital allocation, Saia is well-equipped to weather the current challenges and capitalize on future growth opportunities. Investors should closely monitor the company's progress in optimizing its freight mix and realizing the benefits of its network expansion initiatives in the quarters ahead.