“You can’t put more freight on our dock,” Murray Mullen, CEO of Mullen Group told analysts this week on a call to discuss second quarter earnings. He was calling in from site visits of newly acquired companies and pleased to see warehouses filled to near capacity. “Now we’re working with our business units to say ok, what freight goes on our dock?”
Pricing leverage is coming to the Canadian market, he said, noting it’s difficult to find new drivers and the supply chain has been disrupted by interruptions and changing consumer habits. Expect more but smaller goods delivered directly to consumers in smaller boxes, Mullen said, which will be a boon for LTL carriers and warehouse providers.
Just-in-time inventory management is changing to “just-in-case” management, Mullen said, requiring better planning and more warehousing.
Mullen’s Q2 financial highlights included: A $55-million (21.4%) increase in consolidated revenue, led by logistics and warehousing (up 45.7%) and LTL (up 24.3%); but net income decreasing $1.3 million to $21.7 million primarily due to net foreign exchange fluctuations and lower returns on equity investments.
However, Mullen described the quarter as one of the busiest in its history, with five acquisitions announced during the quarter. And those acquisitions are paying off faster than expected; the company raised its revenue projections from the acquisitions from $355 million to about $400 million per year.
“This quarter, everything seemed to come together at the same time,” said Mullen. “These are good companies that are aligned with our strategic thinking.”
The company spent about $185 million on the deals. Going forward, Mullen said attention turns to integrating them and focusing on smaller tuck-ins. The deals bring Mullen closer to its goal of being a $2-billion revenue company ahead of schedule.
Mullen was bullish on the economy, as Canada has joined the “exclusive club” of getting the majority of its population vaccinated against Covid-19. “The consumer, through everything, has reigned supreme,” he said, noting how demand has shifted from pallets shipped to storefronts to small boxes shipped to homes, benefiting the final mile segment. “Nothing seems to stop the insatiable appetite of the consumer.”
Freight demand is the best it has been in several quarters, Mullen said, with June being the best month in recent memory.
Meanwhile, its hard hit specialized and industrial services segment serving the oil and gas industry is now benefiting from higher commodity prices, with natural gas drilling activity up sharply from last year.
“If you can’t hire more people you take the freight that pays more money and put your good people on that.”
Looking ahead, Mullen said the company will focus on “tightening up and tuck-ins” in the second half. But he is optimistic about the industry’s prospects going forward.
“I don’t know if I could be more confident,” he said of his view of the economy. “Generally speaking, I’m quite positive freight demand and economic activity will be robust.”
Supply chain bottlenecks and an inability to find more drivers will give carriers pricing power, which in Canada has lagged the U.S., he added.
“If this market keeps going the way it’s going, rate increases are nearly a given,” he said. “If you can’t hire more people you take the freight that pays more money and put your good people on that.”
Meanwhile, the company is expanding into the U.S. market with its first acquisition there – a 3PL company called QuadExpress, which it intends to rebrand. It came with its own technology platform that Mullen said the new owner will invest heavily into.
“We’re going to put that technology platform on steroids and invest in it like crazy,” he said. “3PL is a business we like, but 3PL with technology – otherwise it’s just a freight brokerage and we’re not interested in freight brokerage.”