Heartland Express's operating ratio soared higher in Q1, marking the third consecutive quarter the figure has risen after a series of acquisitions last year.
The dry van truckload provider reported an operating ratio of 93.1% last quarter, a notable increase based on a measure that’s averaged in the low 80s in recent decades for the carrier.
The upticks come following M&A activity that doubled the size of the company. Heartland acquired Smith Transport in May 2022, and then it bought Contract Freighters assets from TFI International in August.
“As expected, in the initial periods following an acquisition, there are many operational opportunities to address and those efforts have been escalated given the current freight environment,” Heartland CEO Mike Gerdin said in an earnings announcement.
Heartland Express operating efficiency worsens in recent quarters
Heartland said in an earnings announcement that it has a goal to reduce its operating ratio to the low 80s within three years after acquisitions. The company did not immediately respond to a request for comment on the tactics it might pursue to improve its margins and lessons it has learned from past deals.
The truckload carrier has a lengthy history of buying companies and improving their operating efficiencies. In 2020, Heartland noted that it lowered the operating ratio for numerous companies that it acquired, all of which were initially in the percentage range of the 90s or higher.
Those turnarounds included H&B Carriers and PDQ Transportation in the 1980s; Munson Transportation and A&M Express in the 1990s; Great Coastal Express, which was purchased in 2002; and Gordon Trucking, Interstate Distributor and Millis Transfer in the 2010s.
New acquisitions are just one of the factors affecting the truckload carrier's profits. Gerdin said freight demand is significantly less than it has been in the last two years, and there’s significant pressure from shippers to reduce freight rates “while operational costs continue to rise.”