OKOTOKS, Alta. — A slowly recovering oil and gas industry, and a growing economy, helped Mullen Group achieve improved earnings in the second quarter.
The company grew revenue by 10.8%, to $273.6 million. This included a $13.9 million increase in trucking logistics revenue and an $11.3 million improvement in the oilfield services segment. Net income increased 43.1%, to $19.6 million.
“This was the first quarter in several years that we began to witness a broad-based recovery across most of our business lines, with the only exception being the development of major capital projects in Alberta related to the oilsands and some of the large diameter pipeline undertakings,” said Murray Mullen, chairman and CEO of Mullen Group. “Revenue expanded in both segments with our trucking/logistics segment achieving a record for any quarter.”
In an earnings call with analysts, Mullen gave more insight into how the company is faring, and its future vision.
On acquisition targets
Mullen Group has $250 million in cash earmarked for acquisitions, but Mullen said if an appropriate match doesn’t come along, it will use the money to instead pay down debt. It won’t make an acquisition just for the sake of growth, Mullen insisted.
“Our primary objective still right now is to look and get really great acquisitions,” Mullen said. “But great acquisitions, they come along once in a while. And if we force it too much, we’re paying too much. So, we’re pretty cautious. But boy, the deal flow we see on acquisitions – there’s a lot of them. But most of them, we don’t like…It’s easy to get an acquisition, but it’s tough to get out of an acquisition, so I’m pretty cautious on that front.”
Mullen said if the right fit isn’t found, the company can use its cash to pay down debt or increase its dividends.
On the ‘Amazon-ation’ of trucking
Mullen Group is focused on capitalizing on the trend towards e-commerce, through the management of its LTL trucking operations and also the development of an online marketplace called Moveitonline. The online freight-matching service is still in the works and will be rolled out across the industry when it’s ready, Mullen noted, making the company a more significant third-party logistics player.
“We’re not going to invest in trucks,” he said. “Look, we want to own the customers. We don’t necessarily want to own the trucks. We’ll own the truck if we make enough money and get an appropriate return. But if the marketplace is extremely competitive, Moveitonline becomes an enabler for our logistics business to grow. And only a few companies are going to be able to get their own marketplace. We think we’ll be one of them.”
On capacity and rates
While economic growth in Canada has been slow, trucking margins have remained depressed, so not much capacity has been added. Mullen said slowly increasing freight demand without the addition of trucking capacity has now created a scenario where supply and demand are better aligned and predatory pricing has subsided.
“In the spot market, the pricing pressures are not anywhere near as intense (as they’ve been),” Mullen said. “We’ll see how that plays out and if it continues when you get into the contract basis. But we’re seeing some positive signs.”
On demand in the oilfield
Mullen’s oilfield services segment has improved, but Mullen pointed out it’s coming off the devastating lows of 2015-2016, and not building on previous highs. While drilling activity has improved, he said the large-scale capital projects have not been revived.
“Today, the industry is in a recovery mode, not a growth mode,” he said. “We do not see a recovery in the big capital projects, like oilsands development, new upgraders or pipelines to tidewater. These projects were big economic drivers, creating a multitude of high-paying jobs and requiring a tremendous amount of transportation and logistics coordination…The era of the big capital oilsands projects, while perhaps not extinct yet, is certainly on the endangered list.”
On the overall Canadian economy
Mullen’s outlook on the Canadian economy as a whole was more upbeat, thanks in part to the fact Alberta is now contributing to economic growth and isn’t weighing it down.
“Job growth is healthy. Consumer spending is robust. Trade is doing a little bit better,” Mullen said. However, he noted Eastern Canada is now the motor that’s driving the economy.
“We see the economic growth engine for Canada is now in the east, where the vast majority of consumers are, not the west, where the oil and gas is,” Mullen said.