Highlights From CNW's Q3 Conference Call; Seeing Positive Trends, But Results Reflect Near-Term Challenges

November 4, 2009 1:24 PM EST

Con-Way (NYSE: CNW) reports Q3 EPS of $0.39, versus the analyst estimate of $0.52. Revenue for the quarter was $1.13 billion, which compares to the estimate of $1.14 billion. Shares are down over 10% today.

Highlights From CNW's Q3 Conference Call:

• (CEO) Our Q3 results reflected near-term challenges, all three of our operating companies have adjusted to the resetting economy and we saw some positive trends.
  
• Con-Way Freight continued its growth momentum posting another sequential quarter-to-quarter tonnage gain as well as improvement over last year's Q3.
  
• Volumes are up and we are moving more freight through the system, but not without some growing pains.
  
• Tonnage growth accelerated as the quarter progress, requiring us to ramp up the work force rapidly to accommodate this growth, increasing our variable costs beyond anticipated levels.
  
• A portion of this growth came at pricing levels which were more aggressive than we would normally take.
  
• At Menlo Logistics, we had a very solid quarter. Our supply chain company is doing a superb job managing its costs. Menlo achieved an all time record for quarterly profits in Q3.
  
• Con-Way Truckload also managed their business well through a tough quarter and despite lower revenues turned in a commendable profit performance. Costs remained well controlled, asset utilization is improving and the recent expansion of regional Truckload operations is gaining momentum.
  
• Q3 revenue of 1.13 billion was down 17.3% from last year's 1.37 billion. Competitive pricing and reduced yield surcharge revenue drove the revenue decline.
  
• Quarterly revenue at Con-Way Freight up 692.8 million was down 14.3% compared to Q3 of last year.
  
• Tonnage per day increased 5.1% compared to the same quarter of the prior year and on a sequential basis, third quarter tonnage per day improved 11.9% over Q2. This continued a positive trend we've seen since mid first quarter of this year.
  
• Gross revenue per hundredweight decreased 19.4% compared to the third quarter of last year. Excluding the effect of fuel surcharge, yield in the quarter was down 10.5%.
  
• Excluding the change in accounting estimate, Q3 operating profit for Con-Way Freight was 28.2 million.
  
• Our daily tonnage in September of this year was 38% higher then the low water mark we hit this past January.
  
• Menlo Logistics, revenue net of purchase transportation was 129.3 million, which is an increase of 1.1% over net revenue of 127.9 million in Q3 of last year. The results reflect new contracts implemented this year and higher gain share revenues. Menlo's operating income of 9.5 million established a new record for quarterly earnings.
  
• Truckload reported revenue of 95.7 million after elimination of 50.6 million of inter company revenue. In Q3, Con-Way Truckload recognized the charge of 2.4 million representing a loss in the disposition of the tractors.
  
• (CFO) We generated 46 million of cash from operations in the quarter. 5 million of that cash went to fund net CapEx and 5 million more went to pay common dividends. The remaining 36 million went primarily to build our cash and short-term marketable securities to 438 million at quarter end.
  
• We've increased our cash position by 160 million so far this year.
  
• As for total debt, we had 923 million as of September 30th, 200 million of which comes due in May, 2010. Given our cash balance, we will be retiring these notes at maturity.
  
• Other income statement, items of note include depreciation and amortization expense of 47 million for the third quarter, interest expense was 16 million and our effective tax rate for the quarter was 46% is higher than normal due to the discrete tax items during the quarter.
  
• We guided to use 37% for the tax rate Q4 of 2009. We also recommend that we use an average of 50 million diluted shares for Q4.
  
• Now as for capital expenditures, we now expect 2009 levels, net of asset dispositions, to be 40 to 45 million. We also expect full year depreciation and amortization expense to be around 195 million or slightly less.
  
• We have not finalized our 2010 capital expenditure plan, but for now you can assume that it will be similar to last year's levels of 225 million.
  
• Our plans are to lease up to $50 million of trackers and that be comprised of about 390 units of cranes and 115 units of truckload and all of these would be replacement units. These transactions enable us to capture some very attractive lease rates available during Q4, as well as preserve some cash during 2010.
  
• (Q&A) You mentioned that pricing has actually stabilized a little bit during the quarter, did this happen in the beginning of the quarter or towards the end of the quarter? (A)We saw a fairly steady decline during Q2, and we actually saw our truck to stabilize at the beginning of Q3 and kind of balance along within a pretty narrow hand throughout the course of Q3.
  
• If for some reasons we're sitting here in April talking to each other and YRCW is still hanging around, do you think some of the others have been very aggressive on pricing will start to ease up as we enter into more freight months? (A)I really don't know the answer to that question. I mean certainly we don't have any control over competitive forces in LTL and decisions that our competitors might make regarding their own strategies. So I surely don't have a good response for that.
  
• I just was calling up on Jason's questions on pricing and what's going in your mix thinking about that maybe ask a different way than Jason did, what point do we have to get to where you guys say well we've got all this great tonnage but it came at pretty croupy price and we're not going to be able to reprice it because the market isn't allowing us to yet, because the competitor stayed in or because the economy stayed weak. Are -- is there a cutoff point where you guys start to say okay, this is capacity that's rafting our network and we walk away from it or when do you make that decision to potentially call some of that out of your network? (A)We look at every deal case-by-case. And we'll continuously look at the network in our situation and the customers that makeup our mix and make those decisions account-by-account.
  
• How quickly can you do that, is it in the contracts that you've signed or agreements that 60-day walkaway clauses or I mean, can you just a tell a shipper that you might say is far paying more compensatory rates that you just more moved their freight, how did that work, that process? (A)Virtually every contract we have in place with customers has a we have in place with customers in the 30-day out clause on either side. And the book of business, if you look at how our pricing agreements take place over the course of time. Our book of business we are negotiating with customers pretty evenly throughout the year. And it takes about a year of work through the entire book of business, but everything we have has an out clause.
  
• On the Truckload side, you guys booked a loss on some equipment that you were trading out. I would assume that some of that is due to mark-to-market from when you bought Con-Way truckload and the differential between what the market is now and what it was then. How many more quarters do we have of that equipment trading out, and so how long should we be expecting a drag there? And is it going to be as big as it was, I think it was due something really in this quarter, is that going to continue? (A)Justin, certainly that's going to be an overhang we're going to have for sometime. Herb and I are working through various strategies to help mitigate that as we go forward and we haven't made any final decisions yet. But we're going to try to work towards making that as small a number as possible.

Related Categories

Corporate News
Earnings

Stocks Mentioned

Related Entities

• Dividend

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?