Heartland’s third-quarter consolidated top line fell 3% year over year, while revenue before fuel surcharges declined 4%; slightly behind our expected run rate for the full-year 2013. Management indicated that rates improved, but “inconsistent” freight demand, limited driver availability, and the government’s recently revised hours-of-service rules weighed on tractor utilization. We expect these factors to be a common theme reported by most truckload carriers for the third quarter.

The firm’s operating ratio (ex-fuel) improved 680 basis points to 75%, with a material boost from higher gains on equipment sales (up $2.8 million). Higher gains are coming from the firm’s fleet refresh program, which will wrap up by first-quarter 2014. Margins also benefited from an accounting change that reduced depreciation expense by roughly $2 million. Lower net fuel costs also played a role in the profitability gains.

While we tempered our revenue assumptions for the next few years to account for incremental productivity pressure from new industry regulation, our longer-term performance expectations largely remain intact. We do not expect to make material changes to our fair value estimate or economic moat rating (none).