PAM, Flying High on Wall Street, Sets $1 Billion Target for 2025

PAM Transport, whose stock has risen roughly 185% in the past 12 months, has spelled out its ambitious long-term goals in an unusual way.

The truckload carrier, which traditionally has depended heavily on auto industry-related business, announced it would be a presenter at the Dec. 1 Stephens Annual Investment Conference. That in itself was somewhat surprising, with more than 65% of PAM PTSI owned by Matthew T. Moroun or trusts tied to him. Companies like that generally have less of a need to tout their story to the broader investment community, given the lower volume that tends to come with such a larger percentage of the equity ownership in the hands of one party A review of PAM press releases finds no similar announcement in recent years.

But not only is PAM presenting at Stephens, but it also used the announcement of its participation to spell out its goals for the next several years.

Coming off a blowout third quarter in which the company's truckload operating ratio strengthened to a sub-80% mark, CEO Joe Vitiritto said in the announcement that PAM's goal is to grow to $1 billion in total annual revenue by 2025 and consistently operate at a low-80% OR by that same year.

With nine-month revenue of $446.6 million so far in 2021, PAM is on track to come in around $600 million for the year. It posted corporatewide OR of 83.2% in the third quarter but achieved truckload OR of 77.9%. In the first quarter of this year, companywide OR was 89.5%; 84% was the number for the second quarter.

Vitiritto, in an interview with FreightWaves, confirmed the Stephens announcement was the first time the company had spelled out its long-term goals publicly. 

"Internally, it's been part of our discussion, and I thought it was time to share it and make it more public," he said. "For our team and me, it really puts us into a position where it was about solidifying the strategy."

Vitiritto also said the announcement has the advantage of putting "a little more pressure on our leadership team." The goals aren't just internal talk anymore. By making it public, he said, "it is going to help hold us accountable."

PAM expects to grow its trucking business at the rate of about 150 trucks per year, Vitiritto said. He noted that the statement does not mention acquisitions. "We are not afraid of them," he said, "but our focus really is how to do it organically." Any acquisitions would need to be immediately accretive to earnings, Vitiritto added.

The road to the higher revenue figure does not assume that PAM gets there largely on the back of higher rates. "We don't say you are going to get 10% a year," he said. "We are overly conservative in our growth modeling."

The billion-dollar revenue target would be split along the lines of what Vitiritto said has been the traditional division at PAM: 60% asset-based truckload operations and 40% non-asset-based activities, described as brokerage and logistics in the company's earnings. 

However, Vittirito described some activities under that non-asset banner as involving physical assets — for example, cross-border docks and dedicated trailers to serve the company's Mexico business.

These physical assets in the non-asset business are now seen as the foundation for aggressive growth plans in brokerage and logistics. To be 40% of a billion-dollar business, revenue on the non-asset side of PAM would need to rise significantly. Based on nine-month 2021 revenue of roughly $147.8 million, that would come out this year to a little less than $200 million in its logistics business. To reach 40% of a billion-dollar business by 2025, that has to double.

With the physical side of the logistics business in place, "now it is more about adding people and then the market gives you whatever you're going to get," Vitiritto said of brokerage and logistics.

Long term, PAM will focus on a margin of 15% in the logistics business, which is less than current levels. PAM does not break out earnings before interest, taxes, depreciation or amortization or other measurements for the sector's profitability, but its OR in the third quarter was 88.59%, compared to 94.3% a year earlier.

The focus on the logistics business and its growth through more hires is not just to make it more profitable. Rather, Vitiritto said, it is to be able to present to customers, in combination with its truckload sector, more of a full-service solution. Small customers are welcome, he said, "but what we really want to try to find are people who use our multiple businesses." And the logistics business needs to be larger to get that done, Vitiritto added.

In its truckload business, PAM's exposure to the auto industry traditionally had been 70% of its total customer base. Vitiritto said the company's plan is "to still be in the auto business and not move away from it." Its share of the truckload business is now 30% to 40%, he said.

That 60%-70% untethered from the auto industry has been a "healthier" goal for the company, Vitiritto said. And PAM got there "because what really changed is our ability to execute when there are challenges on the auto side," like the ones that faced the company last year when the auto industry largely shut down at the start of the pandemic.

Vitiritto said the ability to keep costs in check has always been a strong point at PAM. But it isn't enough to succeed long term, he added. Instead, PAM was a company that "really had a tough time navigating market changes."

But the strength of the current market has opened a door. 

"This market has given us an opportunity to do things, and we've accelerated our ability to navigate these changes," he said. Helped along by rising rates, costs could be covered concurrently with the creation of an opportunity "to make the business healthier," he added.

Now that the company's business is "meaningfully diverse," PAM is not necessarily at the mercy of the auto industry, which he described as "a group of customers that is really good at purchasing." PAM's earlier heavy dependence on demand from the automotive industry put the company "in a tough position where you don't have a leg to really negotiate off."

No interview with a trucking CEO today can stray too far from the question of drivers. Vitiritto came to PAM from Knight Swift, KNX which he said had a strong driver culture. What he found at PAM was "a higher turnover rate than I was accustomed to."

Vitiritto said a strong culture involves four key components: pay, home time, equipment, and respect. He said PAM, like other truckload carriers, has been increasing its pay and added that he found the company had a solid record of keeping its equipment up to speed. 

Upon arriving at PAM, Vitiritto said he was "somewhat shocked where our home time expectations were for our drivers." Without providing specifics, he said the company has "made good progress there."

Respect is less easy to measure, but Vitiritto said that that part of the culture "is where we have invested the most." "The longer-term guys are saying you've been delivering from the beginning and we're starting to hear more of this."

PAM has "pulled hard on those four levers," Vitiritto said.

Wall Street so far is applauding the moves PAM is making. The stock performance of the company might be described as astounding, especially for a company whose CEO just took over in August 2020. Admittedly, it is a company with a historically auto sector-focus which a year ago was coming out of closures of auto plants due to the pandemic. For that kind of business, 2021 is going to look a lot better than 2020.

But that can't fully explain these numbers: Not only is PAM's stock up about 185% from a year ago, but it's also up 215% since its low just before Christmas last year. In the past month, the stock is up about 25%, and it's up 110% in the past three months. 

Even after that kind of run, the price-earnings ratio is a relatively subdued 13-plus, and its price-book ratio is also just over 4, a restrained number.

One thing that has helped: PAM is authorized to buy back its stock, in part because of those low valuations. "Our strategy has been that we felt like our stock was undervalued and we needed to get buy-in," Vitiritto said.

PAM recently reauthorized a rolling stock buyback authorization that dates back to 2011. The company has more than 11 million shares outstanding, with an average daily volume of just under 33,000, according to BarChart. It purchased more than 375,000 shares between 2018 and 2019, and in its 10-K filing for 2020 reported minor purchases.

PAM does not pay a dividend. 

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