By posting record Q1 earnings, including a 93% increase in net income and a 9% increase in revenue, Mullen Group defied the general trend among publicly traded fleets.
Murray Mullen, senior executive officer and chairman, gave special praise to the LTL company for the first quarter's success because it did so while maintaining market share and controlling rising costs.
Volumes were stable, supported by strong end-user demand, and throughout the past year, we added a few tuck-in acquisitions. Building lane density and critical mass are two crucial factors in creating a successful business, and I'm happy to announce that our 11 LTL business units are still operating according to schedule. Additionally, Mullen stated in a press release, "Our specialized and industrial services segment generated solid gains, primarily as a result of increased investment by the oil and natural gas industry in western Canada.
"When the year begins well, that is typically a portent of good things to come. Although I fully anticipate there won't be any meaningful growth in the North American economies for the foreseeable future due to end consumer demand remaining under pressure and consumers shifting away from buying things to doing things, such as traveling and enjoying leisure, we must be vigilant and maintain a cautious bias. This indicates that the majority of freight services will continue to see low and competitive demand.
Revenue for the first quarter reached a record $497.8 million, up from $456.9 million at the same time last year. Profit was $31.7 million, more than twice the $16.4 million profit posted in the first quarter of 2022. Logistics and warehousing revenue increased 1.1%, the LTL sector revenue increased 9.8%, and the specialized and industrial business revenue increased 35.4%. The US 3PL industry saw a 9.1% decline.
In a conference call with analysts, Mullen stated that although the Canadian economy hasn't yet experienced the downturn that many had predicted, there has been a recession in North American freight, which is most noticeable south of the border. He explained it away as a freight boom in 2021 brought on by manufacturers and shippers stockpiling inventory in response to robust consumer demand. The need for freight declined significantly as people turned their spending toward tourism and leisure.
On inventories
The single biggest factor in both the freight recession this year and the freight spike last year, according to Mullen, was improper inventory management. "Inventories will be brought back into balance, and the freight recession will end."
He continued, "The freight recession we are in, however, is going to continue for a while yet, in my view, because there's not really a demand push and supply is remaining sticky."
Mullen claimed that warehouses are still filled with stocks, but frequently the wrong kinds of inventory. Retailers and shippers must have the proper products on the shelves, not simply things, he said, predicting that this will change during the rest of the year.
On M&A
Mullen keeps looking at acquisition possibilities, but not only for the sake of expansion. We make acquisitions "because the fit is right, the price is right, and we see that we can generate synergies," Mullen added. "When we come across those opportunities, we're going to seize them wholeheartedly. There is no real reason, in my opinion, for us to make acquisitions at the moment.
Opportunities, he believes, will arise because "anyone who made the wrong calls last year is on the wrong end of this cycle, and in my opinion they will pay a hefty price." We're being pretty particular, then.
On capacity and pricing
Despite the fact that new machinery may finally be entering service, Mullen is not concerned about an oversupply of capacity.
In fact, he claimed, "I'd argue the opposite is likely to happen in this market. The cost of additional capacity will be particularly difficult for small carriers with little cash because of the high cost of equipment and the high borrowing rates now in effect. They cannot possibly be increasing capacity. If anything, capacity will decrease.
Mullen anticipates that prices will hold steady despite the fact that there is no longer any pricing leverage until demand increases.
On new energy
Mullen expects a rise in mining to assist the new energy industry to further help its specialized and industrial services area, which has had a revival.
"I believe that our economy will develop and transition from traditional oil and gas to all sorts of energy. We anticipate some promising chances in the mining industry, which has received insufficient funding, Mullen added.
Particularly in Northern Ontario and British Columbia, greater mining activity could be advantageous for Mullen. "Mining is energy," he declared. "My premise is that we require more energy in all kinds. Alternative energy sources will receive more attention, and mining is necessary in addition to oil and gas drilling.
