Mullen Group shrugged off a freight recession in the third quarter, posting strong Q3 net income of $39.1 million, up 2.9% year over year.
Revenue slid 2.8% to $504 million, but $20.3 million of that revenue decline was chalked up to reduced fuel costs and a reduction in fuel surcharge revenue.
(Photo: Greg Decker)
“Throughout the first nine months of 2023 the economy has endured a period of adjustment due to the rapid rise in interest rates and tighter monetary policy, a deliberate attempt by central bank authorities to reign in inflationary pressures,” Murray Mullen, the company’s senior executive officer, said in a press release.
“These measures have been somewhat successful, but they have also directly impacted economic growth and the demand for freight services. In addition to these macro events, the transportation and logistics market in North America is also experiencing a period of adjustment as retailers, shippers, and manufacturers have embarked upon an inventory rebalancing strategy, after two years of excessive ordering. Consumers have also changed their spending patterns this year towards services and leisure. Despite these headwinds, our business generated very strong results, differentiating the Mullen Group from many of our peers.”
Mullen’s specialized and industrial segment led the way with a 15.3% jump in revenue, while LTL revenue slid 3.7%, logistics and warehousing fell 12.3% and the U.S. 3PL business unit saw revenue decrease 10.8%.
Mullen sees reason for continued optimism in the months to come.
Optimistic view
“There is a growing consensus that the economy may avoid tipping into recession territory, implying that consumer demand can remain at or near current levels for the balance of 2023,” he said in the release.
“There are also a few green shoots suggesting that inventory levels are back in balance, a strong indicator that freight demand may be on the verge of stabilizing. These are positives for the transportation and logistics industry, and more importantly for our organization. In addition, we forecast another solid quarter for the specialized and industrial services segment given the outlook for the Canadian energy and mining industries, verticals in which we have a meaningful presence. And lastly, we continue to evaluate a number of quality acquisition opportunities. Based upon these positive fundamentals, our full year 2023 results are now expected to exceed earlier projections, setting us up nicely for future years.”
Mullen hosted a conference call with analysts from Dallas, Texas, where he was visiting the company’s U.S. operations. He had just attended the American Trucking Associations Management Conference & Exhibition and left there feeling optimistic about the industry.
“I must say the mood in terms of prospects for the industry was quite positive,” he said. “The general tone was the current freight recession has found a bottom.”
But expanding on economic conditions in Canada, he said he isn’t anticipating any strong growth, projecting a Q4 that will be “solid but not spectacular.”
“We don’t see growth but should remain pretty solid going into Q4,” Mullen said.
He feels shippers and manufacturers have finished adjusting their inventories and that the freight market is now in balance from a demand perspective.
“We can now start talking about a recovery in freight demand,” said Mullen, adding pricing will remain challenged in the short-term due to excess capacity that was added over the past two years.
Acquisition opportunities
In terms of acquisition opportunities, Mullen said “We’ve never seen so many opportunities cross our desk. Our challenge is to pick through these ones that meet our main criteria, which is: the right fit, right price point, and there must be synergies to be had. When we find them, we’ll acquire these companies.”
Mullen added the industry is “ripe for a major consolidation trend,” as many carriers overextended their balance sheets and added too much capacity in the past couple years before seeing interest rates and costs rise, “causing stress among those who got overextended.”
However, he said he’s in no rush to make deals.
“In my view, there’s no big, fast rebound here in the economy. We’ll be able to cherry pick what we want,” Mullen said. “We’ll get aggressive at the bottom of the market. I was not aggressive at the top of the market.”
