Insurance claims push U.S. Xpress profits into the red

While other companies have reported record profits in the third quarter, insurance claims and premiums sent U.S. Xpress’ bottom line into the red.

Although operating revenue for the quarter ending Sept. 30 increased from 2021 ($491.1 million) to 2022 ($547.8 million), the company’s operating income dropped from $6.6 million for the third quarter 2021 to a loss of $22.7 million, according to an earning statement and information filed with the Securities Exchange Commission.

“The quarter included $30.1 million in prior period claims and other costs that we do not expect to continue,” the company reported in an earnings call supplement.

The lion’s share of that $30.1 million was for incremental insurance premiums and claims expense, $25.7 million.

Realignment plan

The company reported otherwise that its realignment plan announced in September was improving profitability and cash flow and reducing debt. The plan focuses on the U.S. Xpress over-the-road operations. Also, customers were responding well to its back-to-basics message, he said.

Workforce reductions of 10% were part of the realignment plan as well as pulling back on capital expenditures and a hiring freeze.

Before the realignment plan was announced in September, the company had earlier announced a plan aimed at using autonomous driving tech and formed a new company named Variant. Land Line’s John Bendel had some musings on the project in January 2022.

“Our vision to build a digitally enabled OTR fleet was ambitious and achieved certain successes, but with the freight market softening, it is important that we right-size our cost structure for the current environment to protect our corporate health,” Eric Fuller, president and CEO of Chattanooga, Tenn.-based U.S. Xpress, said in a company realignment plan announcement.

Earlier this year, U.S. Xpress announced a first-quarter operating income loss of $200,000. In comments in the company statement then, Fuller noted having grown the Variant fleet and improving revenue.

Third-quarter earnings

The realignment plan is expected to produce $25 million in annualized cost reductions, Fuller said during the company’s third-quarter earnings call. He said the fourth quarter should see $3 million more in annualized cost reductions.

“While our realignment plan has allowed us to take significant costs out of our business, it was really designed to allow us to get back to the basics of trucking, focusing on blocking and tackling and delivering freight for our customers at a high service level and in a cost-effective manner,” Fuller said during the earnings call.

He noted that the company’s business focuses on discount retail, consumer nondurables and retail grocery, which should be advantageous to the company in the present economic climate. He added that U.S. Xpress was getting better truckload rates per mile and that its fleet had 715 more tractors. Most of those were for its truckload segment. He said the company is not expecting further fleet expansion.

The company reported that truckload revenue increased from $361 million in the third quarter of 2021 to $401.9 in the third quarter 2022, the company reported.

U.S. Xpress’ realignment plan had produced $28 million in annualized cost reductions, including $22 million in salary and wage reductions, Eric Peterson, U.S. Xpress chief financial officer, said during the earnings call.

A decline in spot market rates also affected U.S. Xpress, Peterson said, as did a related net fuel expense because the vast majority of its spot loads do not have a fuel surcharge associated with them

“Due to our spot market exposure in a rising fuel environment, this also has an adverse impact on our net fuel expense, as a vast majority of the spot loads we service don’t have a fuel surcharge mechanism associated with them,” Peterson said.

Other one-time expenses included $1.2 million to terminate its lease in Atlanta and $600,000 in severance-related expenses (plus $377 from workforce reduction initiatives made in previous quarters) and the write-off of a $1 million debt.

Insurance claims

“Overshadowing all the progress that we made in the (third) quarter was a record-high claims expense, which was primarily due to recent unexpected and adverse development in two large claims from accidents which occurred in prior years. In addition, claims settlements have accelerated in the backlog of cases, which were delayed during the pandemic, have started to clear,” Peterson said during the earnings call.

“Over the previous eight quarters, our insurance premiums and claims expense has averaged $23.1 million per quarter. In the third quarter, insurance and claims expense was $43.9 million, an increase of $20.83 million compared to that eight-quarter average. Despite these unexpected and adverse developments, our safety record continues to improve across our fleet as our preventable accidents in 2022 are still over 30% lower than our 2019 levels.”

Recent lawsuits from crashes involving U.S. Xpress drivers include a 2020 New Jersey crash settled in July and a 2019 crash in Iowa that was settled in August, according to Transport Dive. LL

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