USA Truck: Controlling the road

USA Truck Inc. (Nasdaq:USAK) is loaded with profits despite this year’s surge in diesel fuel prices and a slowing economy, which have cut back on over-the-road freight demand. It’s all in the execution: the highway shipper has tuned up business to handle the difficult terrain. 

Van Buren, Ark.-based USA Truck is a medium-haul carrier serving shippers in the United States, Canada and Mexico. Nearly all revenue comes from the United States. The company trucks machinery and equipment, plastics, retail goods, paper products, electronics and more, with a fleet of about 2,000 tractors and 5,700 trailers.

USA Truck’s strategy centers on shortening travel routes, improving fleet utilization and picking up business from those who’ve been taken out by the economy. Its strategy is working: USA Truck increased revenue per tractor per week by 10% in the second quarter through June. 

It’s a matter of adjusting to the market. Since customers are trying to shorten their supply chains in response to higher transportation costs, the company shortened its length of haul. Its ability to improve utilization and reduce its empty mile factor was particularly encouraging in light of the shortened-load length, which often signals reduced utilization and higher empty miles.

Continuous fleet growth over the years, combined with economic weakness, has made it difficult to achieve an acceptable balance of fleet capacity and freight demand. USA Truck now believes it is approaching a balance and, looking ahead, said it will restrict capacity additions to its trucking fleet until it is able to sustain an acceptable return on existing capital investment.

“We see USAK’s Q2’08 results as a solid performance and believe the carrier has begun to take some steps in the right direction,” wrote John Barnes, analyst at BB and T Capital Markets, in a research note after quarterly results were released in mid-July. “We believe that the worst is behind USAK and that the carrier has begun to make some headway toward achieving its internal objectives.”

The company earned $0.21 per share in the second quarter, up from $0.15 in the year-ago period. Revenue was $146 million, up from $124 million. Analysts expect earnings in the current year of $0.38, up from $0.01 in 2007. For 2009, the average estimate is $0.61, up another 60%.

Barnes upgraded shares to “hold” from “underweight,” telling investors to wait for an appropriate time to buy. USA Truck shares didn’t wait, though, rallying since those second-quarter results to close Tuesday at $18, at the high end of a 52-week range of $9.50 to $19.53. The company’s 52-week gain is 18%, compared with a loss in the S&P 500 of 17%.

---