Monthly Archives: February 2009

Werner Enterprises – SWOT Analysis

Werner is a transportation and logistics company engaged in hauling truckload shipments of general commodities in both interstate and intrastate commerce.Through its large size and superior market position, the company is in a favorable position to effectively meet competitive pressures. However, increasing fuel prices would put pressure on the company’s operating margins.

Strengths

Weaknesses

Strong market position Technology advantage Wide portfolio of services

Weak financial performance Overdependence on the US

Opportunities

Threats

Growing global logistics sector

Rise in shippers’ preference for dedicated

contracts

Growth in the US logistics sector

Rising oil prices

Regulations

Slow down of US economy

Strengths

Strong Market Position

Werner is one of the five largest truckload carriers in the US.The company’s truckload fleets operate throughout the 48 contiguous US states pursuant to operating authority, both common and contract, granted by the United States Department of Transportation (DoT) and pursuant to intrastate authority granted by various US states. Werner also has authority to operate in the several provinces of Canada, and provides through trailer service in and out of Mexico.Werner has a fleet of 8,250 trucks, of which 7,470 were owned by the company and 780 were owned and operated by owner-operators (independent contractors). Fleet Truck Sales, a wholly-owned subsidiary, sells Werner’s used trucks and trailers and is one of the largest domestic Class 8 truck sales entities in the US.The Fleet Truck Sales network currently has 17 locations. Werner operates 24,855 trailers. This total is comprised of 23,109 dry vans; 501 flatbeds; and 1,245 temperature-controlled trailers. Strong market position enhances its brand image and ena
bles the company to attract large customers. In addition, strong market position gives the company competitive advantage over its peers.

Technology Advantage

Werner’s is recognized for its technical excellence and innovation. The company leverages its services with the proprietary web-based, user-friendly technology. Werner offers Systems

Management and Resource Tracking (SMART), a secure, web-based application to provide complete supply chain visibility from original vendor to the final store shelf. SMART combines analysis, optimization, supply chain visibility, information exchange, reporting/data mining and mapping in one transportation management system. It is one of the first companies to adopt and embrace truck satellite tracking technology. Werner’s integrated satellite applications are extremely useful for time-sensitive shipments. Werner’s entire fleet of trucks is equipped with the latest satellite communication devices and engine monitoring systems to provide the most reliable and efficient technology on the road.Werner’s technologies help its customers upgrade their distribution network in today’s market. The company’s technology advantage helps it to attain a competitive edge over its peers.

Wide Portfolio of Services

Werner’s provide a wide portfolio of transport and value added services. The company provides on-time service to its customers at a competitive cost.The truckload transportation services include transportation of a variety of consumer, nondurable products and other commodities in truckload quantities; comparable truckload van service within five geographic regions; time-sensitive truckload services; and truckload services for products with specialized trailers. Truckload segment provides specialized services to customers based on their trailer needs (such as van, flatbed and temperature-controlled trailers); geographic area; time-sensitive nature of shipments (expedited shipments); or conversion of the private fleet to the Company (dedicated services).

Werner’s VAS segment offers transportation and logistics services for individual customers. VAS services include truck brokerage, freight management, intermodal, load/mode and network optimization and international.The VAS international services include site selection analysis, vendor and purchase order management, full container load consolidation and warehousing, door-to-door freight forwarding and customs brokerage. The company offers these services on a local, regional or North American basis. Broad product portfolio enables the company to provide end-to-end solutions and tap high value customers.

Weaknesses

Weak Financial Performance

The company has recorded weak financial performance in 2007.Werner’s revenue decreased from $2,080.6 million in 2006 to $2,071.2 million in 2007, a decrease of 0.5% compared with 2006. The decrease in revenues was due to increasingly weaker freight demand, record setting high fuel prices, a slowing domestic economy and the lingering effects of the 2006 truck pre-buy.

Werner’s also witnessed significant decrease in its net and operating profits for the same time period. The net profit decreased from $98.6 million in 2006 to $75.4 million in 2007. The operating profit of the company decreased from $164.5 million in 2006 to $136.5 million in 2007. Weak financial performance does not provide financial stability to the company and limits its growth avenues in the future.

Overdependence on the US

The company has operations in the US, Mexico, China, and Canada with its operations being concentrated in the US.The company derives about 89.6% of its revenues from the US. Majority of the sales offices sales offices, brokerage offices and trailer parking yards are located in US. Overdependence on one geographic region makes it susceptible to changes associated with the economic and political situation of the country.Thus, a higher dependence on the US market may prove to be an obstacle in the company’s efforts to boost its topline.

Opportunities

Growing Global Logistics Sector

The global logistics sector has witnessed strong growth in recent years and the trend is likely to continue in the future. In 2010, the market is forecast to have a value of $725.5 billion, with an anticipated CAGR (2005-2010) of 4.2%. Future growth in the American market is likely to be motivated primarily by the retail segment. Drop in interest rates and increase in consumers’ disposable income is creating demand in this market. The company’s strong presence in logistics sector provides a significant opportunity for the company to boost its top line growth.

Rise in Shippers’ Preference for Dedicated Contracts

Due to the tight capacity situation in TL segment, a large number of shippers have shown an increased preference for entering into dedicated contracts with transportation companies. Dedicated contracts guarantee freight levels and serve as a hedge during an economic downturn.This could be seen as a significant opportunity for the company to increase the number of its dedicated contracts, subsequently benefiting from additions to its revenue base.

Growth in the US Logistics Sector

The US logistics sector has witnessed strong growth in recent past. Despite the poor condition of the infrastructure in the US including road, rail and air transportation links, the logistics market has performed well in recent years, with positive growth rates year-on-year posted consistently since 2001.The US logistics market is expected to reach a value of $221.7 billion by the end of 2010.This representing a CAGR (2005-2010) of 3.8%. Retail transportation accounts for 70.7% of the US logistic market value. The company provides a wide range of logistic services. Hence the company is well positioned to capitalize on the growing logistics market.

Threats

Rising Oil Prices

Rising oil prices have increased the logistics costs dramatically in recent years. A major challenge for land transportation continues to be the increase in costs.The rise in oil prices has an immediate impact on carrier or internal fleet operating costs and fuel surcharges. Crude oil is the raw material that is refined to produce gasoline, diesel, jet fuel and many other petrochemicals.WTI (West Texas Intermediate) averaged $126.5 per barrel in May 2008 compared to $64.93 per barrel in May 2007. Higher fuel prices are likely to have a direct impact on the company’s margins as increase in fuel costs will cause a rise in operating expenses of the company, which would be disproportionate to its sales volume.

Regulations

The company is regulated by the US Department of Transportation (US DoT) and the Federal Motor Carrier Safety Administration (FMCSA). In addition, the company’s operations are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of storm water and underground fuel storage tanks.

The company may also become subject to new or more comprehensive or restrictive regulations relating to fuel emissions, ergonomics or other issues regulated by the US Environmental Protection Agency (EPA). EPA mandated a new set of more stringent engine emission standards for all newly manufactured truck engines. These standards became effective in January 2007. To delay the cost impact of these new emission standards, in 2005 and 2006 the company purchased significantly more new trucks than it normally buy each year. This allowed Werner’s to delay purchases of trucks with the new 2007-standard engines until 2008.

A third and final set of more stringent emissions standards mandated by the epa will become effective for newly manufactured trucks beginning in january 2010. The change in regulations and the subsequent purchase of new trucks to comply with it would lead to an increased cost burden for the company. These regulations may have an adverse impact on the company’s operations.

Slow Down of US Economy

According to the IMF world economy outlook, the real GDP growth of the US and is expected to slowdown in 2008. The GDP growth of the US economy is forecasted to slow down from 3.3% in 2006 to 2.8% in 2008. United States, Werner’s largest geographical market, accounted for 89.6% of the total revenues in the fiscal year 2007. Revenues from United States reached $1,855.7 million in 2007. Therefore, a weak economic outlook for US may put pressure on the revenues of the company.

Werner Enterprises – Top Competitors

The following companies are the major competitors of Werner Enterprises, Inc

  • FedEx Corporation
  • Ryder System, Inc.
  • United Parcel Service, Inc.
  • Swift Transportation Co., Inc.
  • Expeditors International of Washington, Inc.
  • Landstar System, Inc.
  • YRC Worldwide Inc.
  • Heartland Express, Inc.
  • EGL Inc.
  • J.B. Hunt Transport Services, Inc.
  • Knight Transportation, Inc.
  • Dynamex Inc
  • TNT NV
  • Schneider National, Inc.
  • Velocity Express Corporation
  • Pacer International
  • Stonepath Group, Inc
  • Marten Transport, Ltd.
  • USA Truck, Inc

Werner Enterprises – Company View

A joint statement by Gregory L. Werner, President and Chief Executive Officer; C.L. Werner, Chairman; and Gary L.Werner, Vice Chairman of Werner enterprises is given below.The statement has been taken from the company’s 2007 annual report.

Last year presented unusually difficult market conditions. In 2007, our revenues declined slightly to $2.071 billion, and our earnings per share declined 18 percent to $1.02. Increasingly weaker freight demand, record setting high fuel prices, a slowing domestic economy and the lingering effects of the 2006 truck pre-buy created both rate and cost challenges for our industry and our company. Tough times require thoughtful, insightful and decisive actions. We took several important and strategic steps to improve our financial performance and carefully position Werner Enterprises for continued long term success.

During first quarter 2007, we critically assessed the longer-haul truckload freight market. At least six months before several of our larger competitors took similar actions, we began reducing the size of our medium-tolong-haul Van fleet.This quickly enabled Werner Enterprises to better match declining demand with fewer trucks, stabilize our rates with improved freight selection, heighten driver satisfaction with increasing miles per truck and limit our controllable costs. Relative to the best publicly-owned carriers in the industry, Werner Enterprises produced the best earnings performance and operating metrics during the second half of 2007 compared to the same period in 2006.

While we reduced our exposure to the longer-haul sector of the market, our Dedicated, Regional, Expedited and North America International fleets achieved modest growth and more stable operating margins, particularly when considering the challenging operating environment. We continue to be excited about the opportunities and growth prospects for our quality service offerings in these markets. Recognizing the importance of producing the highest possible service during a period when customers have more choices, the collaborative efforts and significant contributions of our professional employees and owner operators produced our best on-time service record in the last five years.

We also successfully expanded and diversified Werner Enterprises in the non-asset-based logistics markets, achieving 67 percent operating income growth. Our Brokerage and Freight Management service offerings achieved their freight growth goals, while at the same time achieving higher operating margins. Our Intermodal service offering capably executed our business plan in a tougher intermodal market and made meaningful operating income improvement. Finally, our developing Werner Global Logistics service offering is well positioned and poised to accelerate growth in overseas markets.

Our management team continues its intense focus on managing our controllable costs. Excluding fuel, during 2007 we held our trucking cost per mile increase to less than 2 percent, below inflationary and competitor trend levels.These efforts are continuing as we begin 2008 with an uncertain domestic economy.

With a very new fleet entering 2007, our capital expenditure needs for new equipment in 2007 were at the lowest level in the past 10 years. This allowed us to put our cash flow to work to strengthen our balance sheet by paying off our remaining debt, while at the same time purchasing $114 million of our common stock at prices we believe will prove to be beneficial for our stockholders in the future. We suspect there will be opportunities in 2008 and 2009 for Werner Enterprises to capitalize on our financial strength, as compared to many competitors with significant financial leverage.

We sincerely appreciate our partner customers who we supported with committed capacity during the strong freight markets of 2004 and 2005. They have supported us with freight, fair rates, reasonable fuel surcharge programs and additional logistics business during the softer freight markets of 2006 and 2007. We also want to thank the outstanding men and women of Werner Enterprises who have stepped up their service, worked harder than ever and held the line on costs during the past year.

Most importantly, we want to thank you for your patience and understanding during recent periods when industry conditions have been less favorable and stock price returns have been less attractive. While we are always disappointed when our earnings are lower than the prior year, we are encouraged by the significant progress we have made. Werner Enterprises is well positioned for future success with rock solid financial stability, excellent customer service, attractive and growing asset-based and non-asset based service offerings and a highly motivated professional workforce.

Werner Enterprises – Locations and Subsidiaries

Head Office

Werner Enterprises, Inc

Werner Enterprises, Inc.

14507 Frontier Road

P.O. Box 45308

Omaha

Nebraska 68138

USA

P:1 402 895 6640

F:1 402 894 3927

http://www.werner.com

Other Locations and Subsidiaries

Werner Enterprises-Georgia 1444 Blairs Bridge Road Lithia Spring Georgia 30122 USA

Werner Enterprises-Arizona

4801 W. Magnolia Street

Phoenix

Arizona 85043

USA

Werner Enterprises-California

10251 Calabash Avenue

Fontana

California 92335

USA

Werner Enterprises-Oregon

10929 N.Vancouver Way

Portland

Oregon 97217

USA

Werner Enterprises-Texas

4600 North McCarty Road

Houston

Texas 77013

USA

Asia Headquarters Werner Global Logistics

(Shanghai) Co., Ltd.

South 23/F Harbour Building

1 Fenghe Road

Shanghai

China 200120

CHN

El Paso

TX Terminal

11090 Gateway East Lot C

El Paso

Texas 79927

USA

Werner Enterprises-Ohio

4395 Laybourne Road

Springfield

Ohio 45505

USA

Laredo

Werner Canada Office

TX Terminal

10862 Steeles Ave.

1201 Carriers Drive

Milton ON L9T2X8

Laredo

CAN

Texas 78045

USA


Werner Enterprises – Revenue Analysis

Werner

The company recorded revenues of $2,071.2 million during the fiscal year ended December 2007, a decrease of 0.5% compared with 2006. United States, Werner’s largest geographical market, accounted for 89.6% of the total revenues in 2007.

Revenues by Division

During the fiscal year 2007, the Truckload Transportation Services division recorded revenues of $1,795.2 million, a decrease of 0.3% compared with 2006.

The Value Added Services division recorded revenues of $258.4 million in 2007, a decrease of 2.8% compared with 2006.

The Corporate division recorded revenues of $2.2 million in 2007, a decrease of 25.7% compared with 2006.

The Other division recorded revenues of $15.3 million in 2007, an increase of 45.2% compared with 2006.

Revenues by Geography

The US, Werner’s largest geographical market, accounted for 89.6% of the total revenues in the fiscal year 2007. Revenues from United States reached $1,855.7 million in 2007, a decrease of 0.9% compared with 2006.

Mexico accounted for 7.8% of the total revenues in 2007. Revenues from Mexico reached $161 million in 2007, a decrease of 4.7% compared with 2006.

Other accounted for 2.6% of the total revenues in 2007. Revenues from Other reached $54.5 million in 2007, an increase of 40.1% over 2006.