In 2010, Berkshire Hathaway Chairman Warren Buffett was asked: “Let’s pretend you’re on a desert island for a month. There’s only one set of numbers you can get. What would it be?” He answered: “Well, I would probably look at perhaps freight car loadings and perhaps – truck tonnage moved – but I’d want to look at a lot of figures.” The following three trucking companies have just reported their 2013 financial year results, with each management team issuing a less than rosy outlook. While management’s outlook isn’t the same as reviewing the hard data Buffett might desire on the…
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In 2010, Berkshire Hathaway Chairman Warren Buffett was asked: “Let’s pretend you’re on a desert island for a month. There’s only one set of numbers you can get. What would it be?”
He answered: “Well, I would probably look at perhaps freight car loadings and perhaps – truck tonnage moved – but I’d want to look at a lot of figures.”
The following three trucking companies have just reported their 2013 financial year results, with each management team issuing a less than rosy outlook. While management’s outlook isn’t the same as reviewing the hard data Buffett might desire on the hypothetical desert island, it does still provide insights for investors.
Transport and logistics company K&S Corporation (ASX: KSC) produced a credible set of full year numbers considering the tough operating environment it faced over the past year. The firm managed to increase revenues by 1.8% to $564.6 million, while limiting the decline in profits to 3%, resulting in a net profit after tax (NPAT) of $15.9 million and a dividend of 11 cents which was consistent with 2012.
As investors know, of far greater importance than past earnings are future earnings. Looking forward, K&S management stated that “providing earnings guidance in these weak economic conditions is extremely difficult.”
MaxiTRANS (ASX: MXI) is Australia’s largest manufacturer and supplier of trailer transport equipment. The resources boom has obviously made it a good time to be in the business of supplying trailers, parts and servicing to the industry with MaxiTRANS announcing a record revenue and profit result for the year to June. Revenue increased by 31% to $362.5 million and net profit after tax surged 111% to $26 million as margins expanded. Earnings per share also increased 111% to 14.11 cents per share (cps) and dividends were increased by 100% to 8.5 cps.
Despite this outstanding result, the outlook from management speaks of low consumer confidence although this is balanced by a positive outlook for the agricultural sector and growth in its China and New Zealand markets.
Scott Corp (ASX: SCC) specialises in the transportation of bulk and hazardous materials. The firm has previously announced the renewal of its coal and alumina haulage contracts valued at $55 million per annum for six years, which provides some certainty for revenues going forward. For the 12 months to June the company increased revenues by 9.3% to $187 million and NPAT by 28.8% to $4.3 million. The full year dividend was increased from 2.5 cps to 3 cps.
One of the more insightful outlook statements written this reporting season is by Mr David Keane, the Managing Director of Scott’s, Keane states:
“There has been a noticeable change in market conditions from late July in Australia. We are witnessing reductions across the entire Transport segment, led by the manufacturing, mining and retail fuel industry sectors. The mining industry has undertaken an aggressive campaign on cost reductions which at times has been matched with lower production outputs.
Consumers are cautious and are not spending and conditions for some manufacturers are equivalent to those experienced during the global financial crisis. We understand that our competitors in the transportation industry are experiencing the same trends which have brought about a high level of surplus capacity in the sector. Many are hoping this is temporary, and will improve after the Federal election. We find it difficult to predict when business conditions will improve.”
Transport companies have many ‘touch points’ within an economy and can provide investors with an ‘economic barometer’ of conditions. With all three trucking companies somewhat wary of the near-term outlook for the economy, this should perhaps be a bellwether for investors who are chasing stock prices higher.
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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.