Echo Logistics Posts 21% Growth in 1Q

echo

In the first quarter, Echo posted 21% revenue growth (9% organic). The increase includes a boost from the October 2013 Sharp Freight acquisition, and partly reflects a 13% rise in shipment volume (less-than-truckload, or LTL, and truckload volume expanded 11% and 18%, respectively). We note that shipment activity slowed relative to the 20% year-over-year gains posted in fourth quarter 2012. Rates to customers on LTL business were about flat, while pricing on truckload shipments grew 3%.

Sales from enterprise-level (contractual) customers grew 16%, as Echo added 25 new accounts over the past year, including seven during the quarter. We estimate average revenue per enterprise account increased 2% year over year, about in line with fourth-quarter trends. Revenue from transactional customers rose 23%, driven by the Sharp acquisition and salesforce growth. At the end of the fourth quarter, Echo had 847 inside sales reps and agents, up from 748 last year. Productivity gains also contributed; we calculate average revenue per transactional sales rep increased 9%, though this is below the high-teens growth posted in previous quarters.

Net revenue (gross revenue less purchased transportation) expanded 18%, less than the increase in gross revenue due to 50 basis points of gross margin compression. A smaller mix of LTL business and a jump in intermodal revenue (from Sharp) were the main drivers of the decline.

Excluding the impact of changes in contingent consideration, operating profit as a percentage of net revenue declined 80 basis points to 14.7%. Integration costs, IT investments, and the implementation of new salesforce training initiatives were primarily responsible for the margin pressure relative to last year. Additional operational support personnel also contributed.

Management lowered its 2013 guidance, and is now calling for total revenue of $900 million to $940 million (previously $940 million to $980 million), with EPS in a range of $0.78 to $0.84 (previously $0.82-$0.90). The reduction stems from relatively sluggish macroeconomic conditions and lowerthan- expected productivity trends related to the timing of new salesforce training initiatives. Overall, we don’t expect to make material changes to our fair value estimate or economic moat rating.

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