MRTN - Marten Transport: Sturdy Business Leads To Sturdy 2022 Results

Summary

• Marten Transport reports an EPS of $0.31, which is $0.01 higher than last year and revenue beat expectations by $4.43 million to $322.58M.
• Through its diversified business platforms, the company has been increasing top and bottom line performance consecutively since 2018, irrespective of the numerous market environment challenges.
• Cautious of the looming recessionary environment, continued labour shortages, and increased expenses cutting into net income in Q4 2022.

Trucking industry stock Marten Transport, Ltd. ( MRTN ) quoted Benjamin Franklin in their Q4 2022 presentation, “Energy and persistence conquer all things.” The business has improved its top and bottom line results every year since 2018, remaining stable irrespective of the market environment, which has been anything but predictable over the last five years. Net income has been increasingly consecutively YoY for sixteen quarters. We can see that investors have been rewarded with 31.91% in returns over the previous year.

MRTN has and will continue to benefit from its diverse five business platform strategy, is forecasting significant capital expenditure of $225 million in 2023 and has onboarded 425 new drivers. I am cautious that the highly competitive freight industry thrives when the market thrives. While the recessionary market continues to loom, labour shortage and expenses continue to cut into net income; there will continue to be tough times ahead. However, due to disciplined and consistent business growth strategies, I continue to recommend a long-term bullish stance. Therefore, investors may want to take a bullish outlook on this stock.

Company Overview

In my previous article, I gave an overview of MRTN . It operates across five revenue-generating business platforms; Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico, focused on dry, temperature and time-sensitive transportation.

We can see that the business has been improving its top and bottom line irrespective of the many varied market conditions since 2018. This demonstrates the management's experience and the business structure's ability to remain flexible and adjust according to external conditions. Labour shortage has been a significant issue in the market, and MRTN has successfully onboarded 425 drivers. However, we see the cost implications in the Q4 2022 results, in which net income only increased by 3.2% to $25.5 million. This was impacted by wage expenses, which increased by 18.2% YoY to reach $104.7 million.

We can see consistency in the business performance. However, if we look forward, what are some compelling factors that could ensure growth in an industry that thrives when the economy thrives? One of its key strengths is its diversification strategy. The company has been investing in its MRTN de Mexico growth, expanding facilities at all three entrees, moving into its new Otay Mesa facility since June 2022, expanding operational space in the Laredo facility and buying land in Rio Grande Valley to increase capacity by building a new facility. MRTN has also onboarded 425 new drivers, ensuring organic growth.

Q4 2022 and Full Financials

MRTN has been delivering consistent upward top and bottom line results in a highly competitive and volatile environment. It reported an increase in YoY of 30% from FY2021 to reach $1.26 billion. Its net income increased by 29% YoY to reach $110.4 million, although the net profit margin dropped to 8.73%, compared to 8.77% in FY2021 due to the inflationary markets leading to higher expenses.

Net of fuel results saw a minor increase in Q4 2022, increasing YoY by 15.8%, while fuel-included total revenue increased by 20.9% to reach $322.6 million for the quarter. We can see below that although the operating ratio net of fuel decreased YoY for the company to 87.8% from 86.8% due to a decline in its truckload and intermodal segments, we can see the strength of its diversification with solid results from dedicated and brokerage compensating for the weakened performance. The number of tractors has increased by 14.23% YoY.

MRTN has a very healthy balance sheet with total cash of $80.6 million and total debt of only $409,000. If we look at the liquidity ratios, we can see a current ratio of 1.90 and a quick ratio of 1.68. TTM's cash from operations was $205.52 million. However, the company has a negative levered free cash flow of $16.38 million. Ideally, we want to see this positive to cover its dividend program, CapEx and covering expenses. It currently has an FWD dividend yield of 1.10% and an annual payout of $0.24.

MRTN is rated between a hold and a buy by various analysts. It has a one-year average target price of $24.50 , close to its current value. If we compare MRTN to two of its peers, similar in enterprise value, Heartland Express ( HTLD ) and Universal Logistics Holdings ( ULH ), we can see that MRTN's price-to-earnings ratio of 16.75 is above its competitors, indicating that the company may be overvalued at its current stock price. If we consider future growth predictions, we can see that its PEG is less than one, which is positive; however, it is higher than its peers. It has a one-year average target price of $24.50, which is still higher than its current price.

Final thoughts

MRTN has and will continue to benefit from its diverse five business platform strategy and is forecasting significant capital expenditure of $225 million in 2023. I am cautious that the highly competitive freight industry thrives when the market thrives, and while the recessionary market continues to loom, labour shortage and expenses continue to cut into net income, there will continue to be tough times ahead. However, due to disciplined and consistent business growth strategies, I continue to recommend a long-term bullish stance. Therefore, investors may want to take a bullish outlook on this stock.

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