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Ross Silverman

VTNC AT A GLANCE

P/E ► -1.78   EV/EBITDA ► -2.42   ROA ► -19.8% LOW ROE ► -48.4% AVG Debt to Equity ► 1.22 AVG Current Ratio ► 1.07 AVG Interest Coverage Ratio ► -10.8 LOW

 

 

 

 

 

 

Vitran Corporation, Inc. (NASDAQ:VTNC) is a provider of freight surface transportation and related logistics throughout Canada and 29 states in the US. The company generated $726.3 million in 2008 revenue from its three business units: Less-than-Truckload Shipping (LTL), Logistics Services, and Truckload Services. Vitran earns its revenue from thousands of customers, with the largest customer accounting for less than 3.0% of total revenue. ^[1]

Vitran's operating income depends on the number and weight of shipments transported, the prices received for the services provided, and the mix of services supplied to its customers. Due to the economic downturn in 2008, Vitran and the entire trucking and freight industry in North America witnessed a slowdown in retail activity. There was an increase in price competition in the LTL segment, while the slowdown in retail negatively impacted the results of the Logistics segment of the company. Vitran finished 2008 with earnings of $0.34 per diluted share. ^[2]

Corporate Overview

Headquartered in Toronto, Canada, Vitran was incorporated in 1981. The business is carried on through it's subsidiaries: Vitran Express Canada Inc. (Ontario); Can-Am Logistics Inc. (Ontario); Vitran Logistics Ltd. (Ontario); Expéditeur T.W. Ltée (Canada); Vitran Corporation (Nevada); Vitran Express Inc. (Indiana); R.A. Christopher Inc. (Kansas); Frontier Transport Corporation (Indiana); Vitran Logistics Corp. (Delaware); Vitran Logistics Inc. (Indiana); Vitran Express West Inc. (Nevada); PJAX, Inc. (Pennsylvania); and Las Vegas/L.A. Express, Inc. (California).

Revenue increased 8.3% to $726.3 million in 2008 from $670.5 million in 2007. Selling, General & Administrative (SG&A) increased 5.9% to $65.7 million in 2008 from $62.1 million in 2007. The increase in SG&A expenses for the 2008 year can primarily be attributed to the acquisition of Las Vegas/L.A. Express Inc. (“LVLA”), a retail supply chain management specialist based in Ontario, on November 30, 2007, not included in the 2007 annual SG&A for the first eleven months of that year. ^[3]

Operating Segments

LTL services accounted for 84.1% of total revenue for Vitran^[4]‎

Less-than-Truckload Shipping (LTL)

Revenue in the LTL segment increased by 4.5% to $610.9 million in 2008 compared to $584.8 million in 2007. The increase in revenue was due to an increase in the fuel surcharge revenue to $33.8 million, as the average price for fuel for 2008 exceeded average fuel prices in 2007.^[5] Offsetting the increase in fuel surcharge revenue was a decline in shipments of 2.7%, a decline in tonnage shipped of 0.2% and a decline of revenue per hundredweight excluding fuel surcharge of 1.3%. For the first three quarters of 2008 tonnage and revenue per hundredweight excluding fuel surcharge expanded. However, in the fourth quarter of 2008, the recession and credit crisis lead to increased competitive pressures and had a negative impact on the annual operating statistics.^[6]

Logistics Services

Vitran’s Logistics business, which represented approximately 11.2% of its revenues for the year ended December 31, 2008, consists of two principal lines of business: (1) Supply Chain Solutions in Canada and the United States including warehousing, inventory management and flow-through distribution facilities; and (2) Freight Brokerage, which coordinates the transport of truck and container loads.^[7] Revenue for the Logistics segment increased by 53.3% to $81.0 million compared to $52.8 million in 2007. Shipments within the Brokerage business unit declined by 15.7% in 2008 compared to 2007. However, within the Supply Chain business unit, the acquisition of LVLA on contributed a full year of revenue in 2008, accounting for $24.8 million of the segment’s increase compared to 2007. In June 2008, the Supply Chain business unit completed a distribution facility that further increased revenue and income from operations for the year. These two significant additions within the Supply Chain business unit offset retail industry weakness in 2008 and contributed to the record income from operations of $4.4 million.^[8]

Supply Chain Solutions

Supply chain solutions involve the transportation and management of goods and the provision of information about goods as they pass through the supply chain from manufacturer to end user. Vitran logistics’ role is to design a supply chain network for a customer, contract with the necessary suppliers (including Vitran’s LTL services), implement the design and manage the logistical system. Vitran’s supply chain business unit offers a range of services in Canada and the United States including warehousing, inventory management and flow-through distribution facilities, focusing primarily on long-term logistics solutions.^[9]

Freight Brokerage

Vitran Logistics coordinates the transport of truck and container loads directly from a customer’s facility to the customer’s consignee, anywhere in North America. The Freight Brokerage unit offers both intermodal and highway solutions to customers with any type of full load requirement. Vitran Logistics supports the movement of freight through direct computer links with both its carriers and customers. It provides customers with real-time tracking, customer support information and expediting as required.^[10]

Truckload

Vitran’s Truckload business, operating as Frontier Transport Corporation (“Frontier”), provides truckload service within the United States. Frontier utilizes its company-controlled trailing equipment and tractor owner operators. The business is primarily dry van but also offers temperature-controlled service in select markets. Frontier operates from two terminals, one in Atlanta and the other in Indianapolis where the main administration office is located. Frontier principally delivers within a 400-mile radius utilizing 246 owner operators with company-owned or leased trailing fleet.^[11] Revenue for the Truckload segment increased by 4.5% to $34.4 million in 2008 from $32.9 million in 2007. The revenue increase was attributable to shipments increasing 7.8%, partially offset by a decline in revenue per shipment of 3%. Income from operations declined by 22.1% due to a reduction in fuel cost recovery of 19.8% and an increase in empty miles of 14.3% as the Segment travelled further to acquire additional freight. Therefore, the operating ratio was 96.2% in 2008 compared to 94.9% in 2007.^[12]

Trends & Forces

Strengthening Border Security Regulations Impacts Service Levels

Measures taken by the U.S. and Canadian governments to strengthen border security regulations increases costs and service time for Vitran. Vitran’s cross-border activity represented approximately 4.5% of the LTL segment revenue in 2008 and the Company has responded to the new requirements to ensure compliance and safety without jeopardizing the quality of service.^[13]

Vitran is Exposed to Foreign Currency Risk

Fluctuations in the U.S. dollar against the Canadian dollar can impact Vitran's financial results. Vitran's Canadian operations realize foreign exchange gains and losses on the U.S. dollar revenue generated against expenses denominated in Canadian dollars. The company reports its results in U.S. dollars thereby exposing the results of Vitran’s Canadian operations to foreign currency fluctuations.^[14]

Vitran is Dependent on a Major Railroad

For its national LTL service in Canada, Vitran depends on the service of a major national railroad. Any reduction in service by the railroad is likely to increase costs for the company and reduce the reliability, timeliness and overall attractiveness of rail-based services.^[15]

Energy Costs

Rising oil prices increases operating costs for Vitran and have a negative impact on overall financial performance. However, while diesel fuel expenses represent an important cost component to Vitran, the extensive use of owner operators and the ability to share significant fuel increases with customers in the form of a fuel surcharge reduce this risk.^[16]

Competition

Vitran competes with many other transportation service providers of varying sizes within Canada and the United States. In the United States, Vitran competes mainly in the eastern, central, southwestern and western states. The transportation industry is highly competitive on the basis of both price and service. Vitran competes with regional, inter-regional and national LTL carriers, truckload carriers, third-party logistics companies and, to a lesser extent, small-package carriers, air freight carriers and railroads.^[17]

Comparing Truckload and Less-than-Truckload Companies^[18]

References

1. ↑ [Vitran 2008 10k p. 3]
2. ↑ [Vitran 2008 10k p. 13]
3. ↑ [Vitran 2008 10k p. 14]
4. ↑ [Vitran 2008 10k p. 4]
5. ↑ [Vitran 2008 10k p. 16]
6. ↑ [Vitran 2008 10k p. 16]
7. ↑ [Vitran 2008 10k p. 16]
8. ↑ [Vitran 2008 10k p. 17]
9. ↑ [Vitran 2008 10k p. 4]
10. ↑ [Vitran 2008 10k p. 4]
11. ↑ [Vitran 2008 10k p. 4]
12. ↑ [Vitran 2008 10k p. 17]
13. ↑ [Vitran 2008 10k p. 21]
14. ↑ [Vitran 2008 10k p. 22]
15. ↑ [Vitran 2008 10k p. 21]
16. ↑ [Vitran 2008 10k p. 21]
17. ↑ [Vitran 2008 10k p. 6]
18. ↑ Hoovers