You would think a sharp drop in fuel prices would be a boon for a trucking company like Patriot Transportation Holding Inc. because fuel is a significant part of its expense.
However, because of fuel surcharges included in customer contracts, Patriot’s margins actually got squeezed early in fiscal 2016 when fuel prices dropped sharply.
“That was something that really impacted us in the first two quarters of the year,” Patriot Chairman and CEO Tom Baker told shareholders at the company’s annual meeting Wednesday at The River Club Downtown.
It was one of several challenges that made 2016 “a pretty tough year,” he said.
Patriot’s business largely consists of transporting petroleum products in six Southeastern states.
The company faced unexpected challenges when a couple of major oil pipeline breaks and Hurricane Matthew shutdowns disrupted the business.
“When these things happen they really throw the normal supply arrangements out of whack,” Baker said.
Patriot also is dealing with the ongoing challenge of hiring and retaining drivers, an issue that has been affecting the trucking industry for several years and isn’t going away. “The tightening driver market just gets worse and worse,” Baker said.
Patriot’s revenue fell 2.2 percent in fiscal 2016 to $120.2 million, due to the reduction in fuel surcharge revenue as prices dropped.
However, the company’s operating profit jumped 39.5 percent to $7.8 million.
“We think that’s an excellent accomplishment given the hurdles we faced during the year,” Chief Financial Officer John Milton said.
Patriot made two small acquisitions of trucking businesses in Tampa and Asheville, N.C., last year and is looking for more opportunities to grow.
Milton said the company has no debt and has $50 million in borrowing capacity available.
“Our challenge is to find a way to deploy that in a way that makes sense for shareholders,” he said.
Patriot officials are optimistic the company is in a good position to take advantage of opportunities as difficult conditions and new technologies force some trucking firms out of business.
“I think a lot of the headwinds out there will be opportunities for us,” Baker said.
Patriot also reported earnings of 28 cents a share for the first quarter of fiscal 2017, which ended Dec. 31. The company earned 42 cents a share in the first quarter of fiscal 2016, but last year’s results included a 31-cent gain from a settlement with BP in the 2010 Deepwater Horizon oil spill.
Revenue for the quarter fell 2.1 percent to $28.8 million but expenses also fell, so operating earnings increased.