Top Off The Tank On Smallcap Marten Transport

The trucking industry is a drag. Hauling tonnages are down, diesel fuel prices are up and good drivers have been hard to find. Contrary outlooks are what makes a market, though, and the bad times now may pull Marten Transport, Ltd (Nasdaq: MRTN) out of its rut.

Truth to be told on Monday, when the trucker of food and other consumer-packaged goods reports second-quarter results after the close. In a seasonably strong time of year for truck transportation, the conditions in the second quarter through June will be key to mapping the company’s route for the rest of the year.

Marten Transport is one of the country’s largest temperature-sensitive truckload carriers, using temperature-controlled and insulated vehicles for long haul transportation. It makes its money from freight revenue on a per-mile basis, mainly from transporting but also from other activities, such as loading and unloading; it also has logistical operations, which include brokerage and intermodal services. The $400-million trucker, headquartered in Mondovi, Wis.,serves customers--mainly food shippers--in 48 states.

So far this year, operating revenue has risen 9.9% to $131.4 million in the first quarter ended March 31, compared with the previous year--largely on the emergent strength of the logistics services. Truckload revenue was up 4.7% to $118.2 million, while Marten’s logistics business, introduced in 2005, contributed $13.3 million in revenue, virtually doubling from last year’s $6.7 million.

But earnings haven’t kept pace, crunched by fuel expenses and other costs, new regulatory standards and sluggish tonnages. EPS for the first quarter were $0.21 per share, down from $0.23 the previous year. In fiscal 2006, during which operating revenue gained 12.8%, Marten broke a string of earnings gains. From 2002’s EPS of 42c, EPS rose to $1.16 in 2005 before jackknifing to $1.13 in 2006.

Fuel prices are a trouble, rising to an average of $2.60 per gallon in 2006 from $2.29 per gallon in 2005--that’s a lot for a company whose drivers logged more than 222 million miles. Marten says in its annual report that it expects fuel expenses to rise in the future because of more restrictive emissions standards that took effect this year.

Compliance with the 2007 standards could add even more to the cost of new tractors. There also have been increased costs associated with a shortage of qualified drivers, although certain analysts see signs the tight driver market may be loosening.

The American Transportation Associations sees the tank as has half-empty. ATA said in late June that its truck tonnage index decreased to a six-month low in May. Compared with a year earlier, tonnage was down 3.6%, the largest year-over-year drop since January. One of the main reasons was that manufacturing activity by weight, not value, fell again in May. Nearly 70% of freight tonnage goes by trucks.

To get back to profits, Marten’s sticking with what got it this far. The company’s motto was service when it started in the 1950s delivering milk, and that’s its mantra today. “Our growth strategy is to expand our business internally by offering shippers a high level of service and significant freight capacity,” Marten says in its annual report. The company concentrates on on-time deliveries that are critical to those shipping perishable items.

Service will get Marten bigger customers, the company figures, and that’s what it wants--so much so that its top ten customers account for more than one-half its business. General Mills, for example accounted for 17% of Marten’s revenue in 2006. Relying on a small number of customers makes one vulnerable if the customer’s business falters, but it’s also sound to have high-quality companies needing your services.

Keeping driver turnover below industry averages, as it has done, controlling what costs it can and growing its logistics business are keys for Marten. Even analysts such as John Larkin at Stifel Nicolaus, who rates Marten a “hold,” sees positives in the company’s business. In a report April 24, Larkin said first quarter results revealed constructive trends that could pay dividends later in 2007. Marten’s balance sheet remains strong, but Larkin said upside for shares at this point just isn’t there.

Thom Albrecht at Stephens Inc. is more of the half-full persuasion. On May 29, Albrecht upgraded Marten to “overweight,” citing improving capacity in temperature-controlled services, attractive valuation and a bottom in Marten’s fundamentals that should mean improved earnings as 2007 unfolds: “While earnings won\'t rebound in a meteoric manner, we believe that 2007 should represent a gradual crescendo of improvement that sets the stage for a strong 2008.”

Stephens put a price target of $24 on Marten’s shares, up about 34% from Thursday\'s close of $17.91. Share values have dropped from $24.78 in March of last year, the highest price since Marten went public in 1986. The 52-week high is $20.50 and the low $14.35.

Albrecht took the seeming bad news and viewed it as upcoming demand. He said net orders for refrigerated trailers plummeted 39.2% in April versus a year earlier, putting year-to-date net orders down 33.5%. “Weak net orders suggest a gradual tightening in supply and demand, with carriers potentially benefiting as early as August or September, although the biggest impact will be felt during 2008,” the Stephens report says. Stephens maintains a market in Marten shares and expects compensation for investment banking services.

Stephens this month lowered its EPS estimate to $0.29 for the quarter ending in June, although it maintained its overweight rating, while Stifel Nicolaus carries $0.31. For the year, Stephens looks for EPS of $1.07, with Stifel Nicolaus at $1.16. Based on 2007 earnings estimates, Marten’s PE near 16.5 compares with the trucking industry’s 19.4. Next year, though, Stephens sees earnings at $1.39, putting Marten’s PE near 13.

Top up the tank. Marten’s readying to get on the road again.

Disclosure: Author has no position in stocks mentioned

Comments

[scared 2 DEATH:]

Marten Transport knows about trainee's[ Lynne Adams] drinking alcohol while in trainee status. Her trainer Chris was made aware of this by me, as Lynne Adams had disclosed this FACT to me personaly. He stated that he only had 2 more weeks with her and he would be rid of her..I informed Ms C. Decker in the H.R. Dept about this fact and the lack back ground information Lynne Adams did not disclose on her job application..These convicitions for MFG METH .,,ASSUALT,,,And THEFT with in the last 12 months were backed up with copys of court records from the BENTON COUNTY SUPERIOR COURTS...State of Washington..Ms Decker was provided copys of said records..Wont it be nice when Marten Transport issues Ms Adams her own 18 wheel rig of death..she will be solo No. 9th 2007..look for her at cocktail lounges coast to coast..good luck

2007 Nov 04 01:08 AM