Con-way Inc. Reports Third-Quarter 2007 Results
Con-way Inc. (NYSE:CNW) today reported net income available to common shareholders for the third quarter of 2007 of $37.3 million, or 78 cents per diluted share. The results compared with third-quarter 2006 net income available to common shareholders of $63.0 million, or $1.24 per diluted share.
Earnings available to common shareholders for the 2007 third quarter were affected by restructuring costs related to acquisition and business transformation initiatives conducted in the quarter, which totaled $7.0 million, or 9 cents per diluted share. Results for the 2006 third quarter included a gain from the sale of a subsidiary of $6.2 million, or 8 cents per diluted share, and the effect of discrete tax items which reduced the tax provision in the quarter by $2.9 million, adding 6 cents per diluted share to the 2006 third quarter.
Revenue was $1.11 billion, an increase of 3.2 percent from last year’s third-quarter revenue of $1.08 billion. Operating income in the 2007 third quarter was $67.7 million, down 33.8 percent from $102.3 million earned in the third quarter a year ago.
Commenting on the results, Con-way President and CEO Douglas W. Stotlar noted that soft customer shipping volumes continued to be a challenge for the highly competitive less-than-truckload (LTL) market, where Con-way Freight recorded a modest increase in tonnage for the quarter. “While we are encouraged with customer response to Con-way Freight’s growth initiatives, the market continues to be very price sensitive. Tonnage per day had a respectable gain over last year’s third quarter; however, yields remain under pressure, a market dynamic that we expect will continue to dampen profit growth in LTL freight through the remainder of the year.”
The quarter saw Menlo Worldwide, LLC complete the acquisition of Singapore-based Cougar Holdings Pte Ltd, increasing its market share and footprint in South Asia and Singapore as well as extending it into new vertical markets. “In addition to successfully executing on its acquisition strategy, Menlo made excellent progress in the quarter toward its business goals, improving operational metrics and securing major new project wins. Our logistics unit is on track to achieve double-digit growth in net revenues and margins for the year,” Stotlar said.
On October 17, Menlo Worldwide, LLC also completed its previously announced acquisition of Chic Holdings Ltd. of Shanghai, China, which extends the company into China’s domestic transportation and logistics management market.
“These international acquisitions, combined with our earlier-concluded purchase of Contract Freighters, Inc. have transformed our capabilities for truckload services in North America as well as for logistics solutions in the Asia Pacific. These become excellent platforms for growth that present substantial opportunities to bring increasing value to our customers and shareholders,” Stotlar concluded.
The effective tax rate for the 2007 third quarter was 37.1 percent compared to 34.2 percent in the same period of 2006, which included the effect of the previously mentioned discrete tax items that reduced the tax provision.
Segment results in the 2007 third quarter for Con-way’s principal operations were as follows:
For the 2007 third quarter, the company’s regional less-than-truckload operations reported:
* Operating income of $60.0 million, a decrease of 36.0 percent from the $93.7 million earned in the year-ago period. The 2007 third quarter included a charge of $5.5 million for reorganization costs related to Con-way Freight’s business transformation initiative while the previous-year third quarter benefited from a $6.2 million gain from the sale of Con-way Expedite.
* Revenues of $740.8 million, 1.3 percent above last year’s third-quarter revenues of $731.0 million.
* Tonnage per day handled by Con-way Freight increased 5.1 percent over the previous-year third quarter.
* Yield for Con-way Freight was down 2.8 percent from the previous-year third quarter. Excluding the fuel surcharge, yield declined 1.9 percent.
* Con-way Freight recorded an operating ratio of 92.0 in the 2007 third quarter compared to 88.0 in third-quarter 2006. Excluding the earlier mentioned reorganization costs, the 2007 third quarter operating ratio was 91.4, reflecting higher employee wage and benefit expense and $3.2 million of rebranding expense. The 2006 third quarter operating ratio excludes the gain on the sale of Con-way Expedite.
For the third quarter of 2007, the company’s global logistics and supply chain management operations reported:
* Operating income of $6.2 million, a 13.3 percent increase from $5.5 million in the third quarter of 2006.
* Revenue of $312.6 million, down 8.3 percent from the previous-year third-quarter revenue of $340.9 million.
* Net revenue of $109.6 million, a 9.8 percent increase compared to $99.8 million in the previous-year third quarter.
Menlo’s revenues consist of freight transportation services purchased and managed on behalf of customers, as well as warehousing and transportation network management fees. The difference between revenue and net revenue growth reflects Menlo’s efforts to reduce purchased transportation costs for its customers, and its continued strategy of maximizing net revenues and margins through a focus on high-value transportation and distribution network management, multi-client warehouse operations and opportunities for supply chain reengineering solutions.
Con-way completed its acquisition of Contract Freighters, Inc. (CFI) on August 23. Segment results include operations for Con-way Truckload for the full quarter, as well as operating results for CFI from August 23 through September 30. For the third quarter of 2007, the company’s full-truckload transportation segment reported:
* Operating income of $3.0 million. The results included an operating loss of $4.7 million related to Con-way Truckload, $1.5 million of which was for the shutdown of Con-way Truckload’s Memphis office.
* Revenue of $52.0 million in 2007 compared with $2.6 million in 2006 reflecting the acquisition of CFI.
* Operating ratio of 87.3, excluding losses from Con-way Truckload in the quarter.
Con-way Other includes the company’s Road Systems, Inc. trailer manufacturing unit as well as other corporate activities. These activities resulted in a $1.5 million net loss during the 2007 third quarter, primarily from environmental remediation at an unused location.
The company expects full-year 2007 earnings from continuing operations to be between $3.07 and $3.17 per diluted share. Current 2007 guidance includes for the first time 17 cents per diluted share for costs related to acquisition integration and business transformation initiatives in the third and fourth quarters, and the previously disclosed 10 cents per diluted share effect for the settlement from litigation of a vehicular casualty claim, noted in the second quarter. The 2007 full-year earnings guidance is based on an expected average number of diluted shares outstanding of 48.0 million for the year. Con-way’s effective tax rate is expected to be approximately 38 percent for the fourth quarter. Current guidance for the full year has been updated to reflect the inclusion of operating results for CFI, as well as Menlo’s recent acquisitions.
INVESTOR CONFERENCE CALL
Con-way will hold a conference call for the investment community to discuss its third-quarter financial results tomorrow, Wednesday, October 24 at 11:00 a.m. Eastern Daylight Time (8:00 a.m. Pacific.)
The call can be accessed by dialing (866) 264-3634 or (706) 643-3632 (for international callers) and is expected to last approximately one hour. Callers are requested to dial in at least five minutes before the start of the call. The call will also be available through a live internet webcast at www.con-way.com, in the investor relations section.
An audio replay will be available for two weeks following the call by dialing (800) 642-1687 or (706) 645-9291 (for international callers) and using access code 17957308. An Internet replay of the presentation will also be available at the Con-way web site, www.con-way.com.
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