Morningstar | Werner's Growth Will Moderate in 2019 as Rates Normalize, but Solid Execution to Persist
Werner Enterprises ranks among the five largest full-truckload carriers in the United States by revenue. Truckload carriers move full trailer loads for individual customers from origin to destination. This differs from less-than-truckload shipping, in which carriers consolidate smaller loads from multiple customers. Werner is a well-run carrier, and although its profitability trails that of a few top operators like Knight-Swift's legacy Knight division, we expect it will maintain a top-tier margin profile thanks to a steadfast focus on freight selection, disciplined fleet management, and persistent investment in driver recruiting. Werner looks to stand out in the $300 billion full-truckload industry by offering a full suite of shipping options, including regional and long-haul dry van, refrigerated, expedited, and dedicated services. It also operates an asset-light truck brokerage unit that focuses on small to midsize shippers with significant supply-chain needs. We think asset-light transportation services have been of interest to the firm as a way to boost its growth profile and reduce capital intensity. Compared with many of its full-truckload peers, Werner is less exposed to highly cyclical end markets such as building materials and automotive parts. Instead, it focuses on more consistent nondurable retail and consumer goods and grocery products, which constitute more than 70% of sales. Werner also allots about half of its tractor fleet to dedicated-contract operations, which offer longer-term services for shippers. Dedicated tends to be more stable and less vulnerable to volatile diesel prices because shippers pay a fuel surcharge for all miles driven (compared with traditional dry van, in which customers pay fuel surcharges only for loaded miles).2018 proved a robust year for top-tier full-truckload carriers like Werner thanks to unusually tight truckload-market capacity stemming in part from widespread ELD adoption. The capacity crunch eased by fourth-quarter 2018, thus spot rates have normalized and growth comparisons are becoming quite difficult. That said, strong contract rate gains should remain a tailwind into the first half of 2019.Werner Enterprises is a transportation and logistics company engaged primarily in transporting truckload shipments of general commodities in both interstate and intrastate commerce. The company has two reportable segments: Truckload Transportation Services, which includes the medium-to-long-haul van fleet that transports a variety of consumer nondurable products and other commodities in truckload quantities over irregular routes using dry van trailers, the expedited fleet that provides truckload services, and the regional short-haul fleet that provides truckload van service across the U.S; and Werner Logistics, which is a non-asset-based transportation and logistics provider.
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