Marten Transport
Annual Report 2019

Plain-text annual report

MARTEN TRANSPORT, LTD. 2019 Annual Report Who We Are Marten Transport, Ltd., with headquarters in Mondovi, Wisconsin, strives to be the premier supplier of time and tem- perature-sensitive and dry transportation and distribution services to customers in the United States, Canada and Mexico. We have strategically transitioned from a long-haul carrier to a multifaceted business offering a network of truck-based transportation capabil- ities across our five distinct business platforms—Truckload, Dedicated, Intermodal, Brokerage and MRTN de México. We will accomplish our mission by exceeding the expectations of our customers, employees, stockholders and society. We serve cus- tomers with demanding delivery deadlines, as well as those who ship products requiring modern temperature-controlled trailers to protect goods. Our dry freight services are expanding, with 1,650 dry vans operating as of December 31, 2019. Founded in 1946, we have been a public company since 1986. Our common stock trades on the NASDAQ Global Select Market under the symbol MRTN. At December 31, 2019, we employed 4,087 people, including drivers, office personnel and mechanics. Five-Year Financial Summary (Dollars in thousands, except per share amounts) 2019 2018 Years ended December 31, 2017 2016 FOR THE YEAR Operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 843,271 76,498 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,071 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income – excluding 2017 deferred income taxes benefit(1) . 61,071 Operating ratio(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90.9% $ 787,594 70,348 55,027 55,027 $ 698,120 56,862 90,284 33,819 $ 671,144 58,303 33,464 33,464 91.1% 91.9% 91.3% 90.8% 2015 $ 664,994 61,063 35,745 35,745 PER-SHARE DATA(3) Basic earnings per common share . . . . . . . . . . . . . . . . . . . . . . $ Basic earnings per common share – excluding 2017 deferred income taxes benefit(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share – excluding 2017 deferred income taxes benefit(1). . . . . . . . . . . . . . . . . . . . . . . Dividends declared per common share . . . . . . . . . . . . . . . . . . Book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 $ 1.01 $ 1.66 $ 0.62 $ 0.64 1.12 1.11 1.11 0.77 10.92 1.01 1.00 1.00 0.10 10.57 0.62 1.65 0.62 0.08 9.64 0.62 0.61 0.61 0.06 8.04 0.64 0.64 0.64 0.06 7.50 AT YEAR END Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796,586 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 597,589 Stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 753,904 – 575,954 $ 690,403 – 525,500 $ 653,748 7,886 437,338 $ 631,528 37,867 409,421 (1) Net income and basic and diluted earnings per common share for 2017 are presented for comparative purposes excluding the $56.5 million deferred income taxes benefit recorded to recognize the impact on our federal net deferred tax liability of the reduction of the federal corporate statutory income tax rate from 35% to 21% related to the Tax Cuts and Jobs Act of 2017. (2) Represents operating expenses as a percentage of operating revenue. (3) The amounts for 2015 and 2016 have been restated to reflect the five-for-three stock split effected in the form of a 662⁄3% stock dividend on July 7, 2017. Note: We account for our revenue in accordance with FASB ASC 606, which we adopted on January 1, 2018 using the modified retrospective method. Prior years have not been restated and continue to be reported under the accounting standards in effect for those periods. To Our Stockholders and Employees In a year in which nearly all other major carriers experienced substantial earnings deterioration, Marten Transport produced the highest operating revenue and operating income for any year in our history. These record performances in 2019’s weak pricing environment significantly surpassed the previous record levels achieved in 2018’s exceptionally favorable market. Our operating revenue improved 7.1% in 2019 on top of the 12.8% increase in 2018. Our operating income improved 8.7% in 2019 on top of the 23.7% increase in 2018. Success breeds success. Marten’s 11.0% increase in net income for 2019 was our fifth consecutive improvement in annual earnings, excluding a deferred income taxes benefit in 2017 and a gain on the dis- position of facilities in 2015. Our operating ratio, net of fuel surcharges, was our best over the last 14 years. Unique Model, Unique Consistency The consistency of Marten’s earnings growth is unique among major trucking companies—as is the business model that has made this consistency possible. Marten has developed a model quite different from the rest of the industry, reshaping our operations in response to a constantly changing and expand- ing marketplace. In the process—which continues—we have evolved from a long-haul refrigerated carrier into a growing network of truck-based transportation capabilities. This mul- tifaceted approach has given us five distinct but complemen- tary business platforms: Truckload, Dedicated, Intermodal, Brokerage and MRTN de México. Together they offer an expanding combination of transportation capabilities designed to provide the best, most efficient service for a diverse and growing range of customers. Of course, no matter how well conceived, a business model is only as good as the people who execute it. And that is the other major factor in the consistency of Marten’s operating perfor- mance—the talent and smart, hard work of our experienced and dedicated workforce. Within a culture that recognizes that transformation is a process, not an event, our people focus daily on cost and productivity improvement—on doing their best to exceed the expectations of our customers. They are equipped with our in-house, industry leading information technology system—a proprietary competitive advantage that provides the real-time visible information needed to quickly make data-driv- en decisions for improved supply chain productivity. Our results for 2019 once again offer a measure of the edge our model gives us. The entire industry was caught in a painful squeeze between inflationary cost pressures and a persistent oversupply of truckload capacity. Marten is not immune to these pressures. But, our diversified model gives us the opera- tional flexibility and resilience to produce consistent profitable growth, and the ability to overcome difficult economic envi- ronments. Operating Results Comparison Operating revenue Operating income Net income Percentage Change Year Ended December 31, 2019 vs. 2018 Percentage Change Year Ended December 31, 2018 vs. 2017 7.1% 8.7% 11.0% 12.8% 23.7% 62.7% Net income used to calculate the percentage increase from 2017 to 2018 excludes a $56.5 million deferred income tax benefit in the fourth quarter of 2017. 2019 Financial Results For 2019, net income was $61.1 million, or $1.11 per diluted share, up 11.0% from $55.0 million, or $1.00 per diluted share, for 2018. Operating revenue improved 7.1% to a record $843.3 million for 2019 from $787.6 million for 2018. Excluding fuel surcharg- es, 2019 operating revenue improved 8.6% to $739.9 million from $681.4 million for 2018. Fuel surcharge revenue decreased to $103.4 million from $106.2 million for 2018. Operating income improved 8.7% to a record $76.5 million for 2019 from $70.3 million for 2018. Our operating ratio (operat- ing expenses as a percentage of operating revenue) improved to 90.9% for 2019 from 91.1% for 2018. Our operating ratio, net of fuel surcharges, was 89.7% for each year. Regional Foundation Our network of regional operating centers across the nation provides the foundation for development of our diverse cus- tomer solutions, enabling us to address customer trends toward regional distribution and facilitating supportive interaction across our five individual business platforms. Truckload—regional and over-the-road fleets operating from Marten’s 15 regional service centers, including dry van operations out of our Kansas City, Atlanta and Phoenix facilities. Truckload revenue was $378.0 million for 2019 versus $375.3 million for 2018. Excluding fuel surcharges, Truckload revenue was $329.3 million, up 2.2% from $322.3 million in 2018. Average revenue, net of fuel surcharges, per tractor per week—a main measure of Truckload asset productivity—was down less than 1%, despite the pressure on industry rates in 2019’s softer freight environment. Operating income was $29.7 million, down from $35.1 million for 2018. The 2019 Truckload operating ratio was 92.2%, and the operating ratio, net of fuel surcharges, was 91.0%. Dedicated—customized solutions tailored to individual customers’ requirements utilizing refrigerated trailers, dry vans and other specialized equipment. Dedicated revenue has grown by 278% over the past five years, reflecting this platform’s mutually sup- MARTEN TRANSPORT 2019 ANNUAL REPORT portive interaction with our regional Truckload and Brokerage resources. For 2019, Dedicated revenue increased 18.8% to $266.0 million from $223.9 million for 2018. Excluding fuel surcharges, Dedicated revenue improved 19.7% to $223.9 mil- lion for 2019 from $187.1 million for 2018. Operating income was $31.2 million, up 68.1% from $18.6 million for 2018. The 2019 Dedicated operating ratio was 88.3%, and the operating ratio, net of fuel surcharges, was 86.0%. Our average number of tractors in service grew 16.9% to 1,272 from 1,088 in 2018. Intermodal—refrigerated TOFC (trailer on flatcar) and refriger- ated COFC (container on flatcar) services, providing the economies and energy efficiencies of long-haul rail transportation with extend- ed door-to-door support from Marten’s truck network. Marten is the largest truckload temperature-controlled carrier with the BNSF Railway Company. During the second half of 2019, we began phasing in refrigerated COFC to our Intermodal plat- form, ordering 500 stackable refrigerated containers in August. They are being put in service immediately upon delivery, with all expected to be operating in early 2020, putting Marten ahead of the industry’s expected transition to this space-sav- ing equipment. COFC offers both economic and operational advantages over TOFC. Reflecting competition with unsus- tainably low over-the-road truckload rates, Intermodal reve- nue declined to $90.4 million for 2019 from $102.0 million for 2018. Excluding fuel surcharges, Intermodal revenue was $77.8 million, compared with $85.6 million in 2018. Operating income was $6.6 million, down from $11.2 million for 2018. The 2019 Intermodal operating ratio was 92.7%, and the oper- ating ratio, net of fuel surcharges, was 91.5%. Brokerage—surge flexibility to supplement Marten’s capabilities through temperature-controlled and dry van services provided by smaller third-party carriers. Marten’s Brokerage resources are an integral part of our growing transportation network, supporting our Dedicated platform by ensuring reliable shipping conti- nuity for our customers during surges in demand. Marten’s Brokerage revenue improved 26.1% to $108.9 million for 2019 from $86.4 million for 2018. Brokerage operating income increased 61.9% to $9.0 million from $5.5 million for 2018. The Brokerage operating ratio was 91.8% for 2019. Operating within our Truckload and Brokerage segments, another profitable component of Marten’s vision and plan is MRTN de México, which provides door-to-door business ser- vice between the United States and Mexico with our Mexican partner carriers. Its 2019 revenue was $63.3 million—reported as part of our Truckload and Brokerage results. Investing in Safety As part of Marten’s drive for continuous improvement, we have focused on the creation of better jobs for our drivers, safer jobs—the best jobs for the industry’s best drivers. Unlike the other major carriers, we only hire experienced drivers. Our ded- icated, regional and intermodal infrastructure offers our drivers more attractive route options. We’ve led the way in compen- sation improvements, health coverage, safety and technology. MARTEN TRANSPORT 2019 ANNUAL REPORT The equipment we provide is the safest available, featuring automatic transmissions, radar-based collision avoidance sys- tems and lane departure systems. Our approach has given us the finest driving team in the industry—well worth the industry-leading pay increases we’ve introduced. The return on that investment in terms of safety and driver performance is another ingredient in Marten’s prof- itable growth. Carriers that are forced to hire inexperienced, unproven drivers are more susceptible to safety and regulatory problems. Thanks to Marten’s elite driver base and unrelenting emphasis on safety, the liability insurance inflation driven by “nuclear” jury awards has not impacted us to the same degree as the industry in general. While Marten has established a clear competitive edge in hiring top drivers, the overall shortage of drivers remains a critical problem for the industry. Escalating driver pay and insurance and equipment costs are leading the challenging inflationary cost increases that will con- tinue through 2020. But, we expect an improvement in the rate environment with a tightening of industry capacity in 2020. Unlike carriers that found themselves saddled with idle tractors and empty trailers during the worsening freight environment in 2019, Marten added 329 Dedicated and 101 Truckload tractors. That was a 16.1% increase in our fleet size since the beginning of the year—another measure of the edge that our multifaceted model gives us, another illustration of the talent and teamwork of the people of Marten. We expect to continue to expand our capacity in 2020 and we’re off to a strong start with recent awards of new dedicated business with several cus- tomers for over 185 additional tractors starting in 2019’s fourth and 2020’s first quarters. Marten’s people continued to work together as a smart, dis- ciplined team in 2019 to build on our model and produce profitable growth in a challenging freight and driver market. In the process we have laid the groundwork for another profitable growth year in 2020. Success breeds success. Sincerely, Randolph L. Marten Chairman of the Board and Chief Executive Officer February 17, 2020 This Annual Report, including the Stockholders and Employees Letter above, contains forward-looking statements. Written words such as “may,” “expect,” “believe,” “anticipate,” “plan,” “goal,” or “estimate,” or other variations of these or similar words, identify such statements. Our actual results may differ materially from those expressed in such forward-looking statements because of important factors known to us that could cause such material differences including those noted in the attached Form 10-K under the heading “Risk Factors.” Corporate Information Corporate Headquarters 129 Marten Street Mondovi, Wisconsin 54755 Telephone: (715) 926-4216 Fax: (715) 926-4530 www.marten.com Stockholder Information Additional copies of our 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission are available by writing to James J. Hinnendael, executive vice president and chief financial officer, at our corporate headquarters. Annual Meeting Stockholders, employees and friends may attend our annual meeting on Tuesday, May 5, 2020, at 3:00 p.m. at the Roger Marten Community Center, 120 South Franklin Street, Mondovi, Wisconsin. Stock Listing NASDAQ Global Select Market symbol: MRTN Legal Counsel Fox Rothschild LLP Campbell Mithun Tower – Suite 2000 222 South Ninth Street Minneapolis, Minnesota 55402 Independent Registered Public Accounting Firm Grant Thornton LLP 200 South Sixth Street, Suite 1400 Minneapolis, Minnesota 55402 Transfer Agent and Registrar Computershare Shareowner Services Stockholder correspondence mailing address: P.O. Box 505000 Louisville, Kentucky 40233 Overnight correspondence address: 462 South 4th Street, Suite 1600 Louisville, Kentucky 40202 Telephone: (866) 637-5412 TDD: (800) 231-5469 Foreign: (201) 680-6578 www.computershare.com/investor Stockholder online inquiries: www-us.computershare.com/investor/contact Direct communications about stock certificates or a change of address to Computershare Shareowner Services. MARTEN TRANSPORT 2019 ANNUAL REPORT Executive Officers and Directors Randolph L. Marten Chairman of the Board, Chief Executive Officer and Director Timothy M. Kohl President James J. Hinnendael Executive Vice President and Chief Financial Officer John H. Turner Executive Vice President of Sales and Marketing Thomas A. Letscher Secretary Partner, Fox Rothschild LLP Minneapolis, Minnesota Larry B. Hagness Director Chief Executive Officer, Durand Builders Service, Inc. Durand, Wisconsin Thomas J. Winkel Director Management Consultant Pewaukee, Wisconsin Jerry M. Bauer Director Chairman of the Board and Chief Executive Officer, Bauer Built, Inc. Durand, Wisconsin Robert L. Demorest Director Business Consultant and Retired President, Chief Executive Officer and Chairman of the Board, MOCON, Inc. Minneapolis, Minnesota Ronald R. Booth Director Retired Partner, KPMG LLP Dellwood, Minnesota Kathleen P. Iverson Director Retired President, Chief Executive Officer and Chairman of the Board, CyberOptics Corporation Chanhassen, Minnesota The 2019 Annual Report is printed on recycled paper. MARTEN TRANSPORT 2019 ANNUAL REPORT MARTEN TRANSPORT, LTD. 129 MARTEN STREET MONDOVI, WISCONSIN 54755 TELEPHONE: (715) 926-4216 FAX: (715) 926-4530 www.marten.com 

Continue reading text version or see original annual report in PDF format above