Record third quarter earnings at Mullen Group were not telling of a cratering economy, and chairman and senior executive officer Murray Mullen anticipates a strong close to the year before economic activity slows in 2023.
Revenue was up 20% year over year, to $518.4 million, and profits soared 117% to $38 million in the third quarter. Pricing improvements and small acquisitions helped drive improvement, Mullen said in a press release.
“These are some of the better results our company has ever achieved in what is perhaps the best operating environment I have seen in my career,” he said. “The strong economy provides our business with the lane and load density our business units need to be profitable. And inflation translates into higher pricing, which is very consistent with an economy operating near peak capacity.”
While he said future results are likely to moderate as central bankers try to slow economic activity in response to inflation, Mullen expects the rest of this year to remain “steady.” He’s encouraged by continued strong employment numbers, which are one of the most important indicators he tracks.
“There are some soft spots for sure. However, consumers have not stopped spending, governments continue to hand out money, and investment in capital projects is still required,” said Mullen. “So, I still see the demand for freight, logistics and warehousing services remaining strong through year end.”
Speaking during a conference call with analysts, Mullen said he has faith in the consumer keeping the economy steady, if not growing.
“The Number 1 issue I focus on is the job market, and if it remains strong, consumption will remain steady,” Mullen said. “It will perhaps change, but we will still be OK. We are a consumer-driven economy.”
However, he noted he doesn’t see any growth in the economy, either, and that “downside risks are now elevated.” Mullen feels the manufacturing of critical components will continue to be brought back to North America and that increased investment will be required in the oil and gas sector to control energy costs.
He also said large acquisitions by Mullen Group aren’t likely anytime soon, as investors are risk-averse and don’t currently reward growth. But he said smaller tuck-ins could continue and that valuations are coming down.
Mullen told analysts he’d provide his thoughts in “short and to the point” Twitter-style remarks. While we don’t think he has a Twitter account, in the spirit of his approach, we’ve taken the liberty of presenting some of his comments in 280 characters or less.
On indications Canada may be willing to fast-track energy projects to help Europe with supply: “I haven’t heard anything like that since the days of the Harper government.”
On the general economy: “No growth doesn’t mean contraction.”
On Mullen’s labor force: “We are currently fully staffed at this time and people are now available.”
On pricing: “Rates are stabilizing. Perhaps they may come down somewhat, but costs remain sticky high.”
On the supply chain: “Most issues are starting to be resolved. Warehouse space is very tight due to high inventory levels. It’s one pallet in, one pallet out.”
On equipment availability: “We’re on allocation. Even if we want to purchase new trucks today, we can’t get them and we expect those challenges to persist into 2023-2024.”
On capacity: “Truck prices have doubled. Individuals with old trucks have to increase prices dramatically. Many don’t have the right equipment for today’s market.”
On M&A: “Growth is not rewarded today as it was in a very low interest rate environment…Why would I buy someone today? Valuations are coming down.”
On fuel prices: “Refining capacity is very limited due to years of chronic underinvesting. If one thing goes wrong, there will be a shortage of refined products. I believe fuel prices will stay elevated.”
On productivity: “There has been a lack of productivity in the economy…Maybe we can get back to getting productivity gains again and grow our business the old-fashioned way, which is you earn it rather than price it.”
On significant rate decreases: “I really don’t see that as long as the consumer stays active. They are still spending and that’s really what drives the LTL business.”
On potential for price increases in 2023: “Inflation is coming down fast. We don’t have the same pricing leverage in the marketplace we had before.”
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