Con-way Inc. Reports Fourth-Quarter And Full-Year Results For 2008

SAN MATEO, Calif. -Con-way Inc. (NYSE:CNW) today reported a net loss from continuing operations (after preferred stock dividends) for the fourth quarter of 2008 of $49.7 million, or $1.09 per diluted share. The results compared with fourth-quarter 2007 net income from continuing operations (after preferred stock dividends) of $36.9 million, or 78 cents per diluted share.

Both the 2008 and 2007 fourth-quarter results from continuing operations included special charges. Without the charges, on a non-GAAP basis (See Footnote a) Con-way net income from continuing operations was $4.5 million, or 10 cents per share in the 2008 fourth quarter, compared to 2007 fourth-quarter earnings of $41.8 million, or 88 cents per diluted share. Special charges affecting both periods included the following:

2008

* $21.3 million (28 cents per share) for restructuring charges from network re-engineering and workforce reduction at Con-way Freight.
* $37.8 million (80 cents per share) for an impairment charge related to goodwill and other intangible assets at Menlo Worldwide Logistics’ China-based entity, Chic Holdings, Ltd.
* $4.9 million (11 cents per share) for the write-down of a receivable related to the acquisition of Chic.

2007

* $7.7 million (10 cents per share) comprising a charge for business transformation and management office consolidations at Con-way Freight.

The net loss to common shareholders in the 2008 fourth quarter was $43.0 million, or 94 cents per share. This compares to previous-year fourth-quarter net income to common shareholders of $34.5 million, or 73 cents per diluted share.

Net income to common shareholders for both the 2008 and 2007 fourth quarters included the above mentioned special charges. Net income for both periods also included the effect of discontinued operations, described below:

* 2008 fourth quarter: A net gain of $6.7 million (15 cents per share) representing the cash proceeds received from resolution of an insurance matter and a claims issue, less the amount of a payment made for settlement of a legal matter.

* 2007 fourth quarter: A charge of $2.5 million (5 cents per share) representing a loss from various other activities classified as discontinued operations.

Revenue in the 2008 fourth quarter was $1.13 billion, a decrease of 6.2 percent from last year’s fourth-quarter revenue of $1.20 billion. The operating loss of $35.2 million in the 2008 fourth quarter compared to operating income of $70.0 million in the fourth quarter a year ago.

The 2008 fourth-quarter income tax benefit rate of 3.3 percent primarily reflects no tax deduction for the impairment charge and the write-down of the acquisition-related receivable, as well as tax expense from other discrete tax items. The effective tax rate for the same period of 2007 was 35.3 percent.

FULL YEAR 2008 RESULTS

For the full-year 2008, Con-way reported net income from continuing operations (after preferred dividends) of $58.6 million, or $1.23 per diluted share, compared with $146.8 million (after preferred dividends), or $3.06 per diluted share in 2007. Both years included the effect of special charges.

Excluding special charges in both years, on a non-GAAP basis (See Footnote a) full-year 2008 net income from continuing operations was $116.0 million, or $2.41 per diluted share, compared to $155.2 million, or $3.23 per diluted share earned in 2007.

Including the effect of discontinued operations and special charges, net income to common shareholders for the full-year 2008 was $67.0 million, or $1.40 per diluted share, compared to net income to common shareholders in 2007 of $146.0 million, or $3.04 per diluted share.

Revenues for full-year 2008 rose to $5.04 billion from 2007’s revenues of $4.39 billion, a 14.8 percent increase. Operating income in 2008 was $192.6 million compared with $264.5 million in 2007.

Commenting on the results, Con-way President and CEO Douglas W. Stotlar said, “As we noted in our update last month, the deteriorating economy in the fourth quarter foreshadowed an extraordinary decline in demand for freight services. As this decline accelerated through November and December, our freight business volumes fell at an unprecedented rate, with a corresponding effect on earnings.”

In response, Stotlar noted that the company has taken a number of steps to reduce costs and conserve cash, including workforce reductions, aggressive expense controls, lower capital expenditures and a freeze on pay levels for management and administrative employees for 2009. “These were difficult decisions, necessary to align our costs for the current environment, and to help position us to weather what looks to be an extremely tough recessionary economy.”

Stotlar emphasized however that while Con-way is actively pursuing continuous cost reduction and efficiency improvement measures throughout the enterprise, the company is not compromising on service. “Even more so in challenging economic times, customers want secure, financially stable service providers who they can trust to provide consistent, reliable everyday performance,” he said.

“We have excellent franchises with reputations for superior service. Our employees are putting in tremendous effort to take care of our customers, delivering some of the highest productivity and service levels in our history. All of our business units are operating from positions of strength in their markets and remain focused on delivering the premium value for which we are known.”

For the full-year 2008, the effective tax rate was 51.5 percent compared to 36.6 percent in the prior year. The higher 2008 tax rate primarily reflects the effect of the previously mentioned impairment charges in the fourth-quarter.

Segment results in the 2008 fourth quarter for Con-way’s principal operations were as follows:

FREIGHT

For the 2008 fourth quarter, Con-way Freight, the company’s regional less-than-truckload operations, reported:

* An operating loss of $9.4 million compared to profit of $55.2 million in the year-ago period. The 2008 fourth quarter included a pre-tax restructuring charge of $21.3 million for network re-engineering and workforce reduction costs. Without the restructuring charge, Con-way Freight earned $11.9 million in the quarter. The 2007 fourth quarter included a $7.7 million restructuring charge.
* Revenues of $640.3 million, a 13.4 percent decrease from last year’s fourth-quarter revenues of $739.2 million.
* Tonnage per day decreased 7.7 percent from the previous-year fourth quarter.
* Yield, defined as revenue per hundredweight, declined 2.2 percent from the previous-year fourth quarter. Excluding the fuel surcharge, yield declined 1.4 percent.
* An operating ratio of 101.4 in the 2008 fourth quarter compared to 92.6 in fourth-quarter 2007. Excluding the restructuring charge mentioned earlier, the 2008 fourth-quarter operating ratio was 98.2. The 2007 fourth quarter operating ratio included the $7.7 million restructuring charge and rebranding expense of $3.0 million.

LOGISTICS

For the fourth quarter of 2008, Menlo Worldwide Logistics, the company’s global logistics and supply chain management operations, reported:

* An operating loss of $38.6 million compared to income of $5.9 million in the fourth quarter of 2007. Menlo’s 2008 fourth-quarter results included the $37.8 million impairment charge for goodwill and other intangible assets, and the $4.9 million write down of the receivable related to the Chic acquisition. Without these special charges, Menlo’s income for the 2008 fourth quarter was $4.2 million.
* Revenue of $373.1 million, up 9.7 percent from the previous-year fourth-quarter revenue of $340.1 million.
* Net revenue of $129.3 million, an increase of 2.5 percent compared to $126.1 million in the previous-year fourth quarter.

While Menlo recorded an increase in net revenue, operating income declined due to the special charges and other costs incurred for remediation of operating issues in China.

TRUCKLOAD

For the fourth quarter of 2008, Con-way Truckload, the company’s full-truckload transportation operations, reported:

* Operating income of $14.5 million, a 64.7 percent increase over the $8.8 million earned in the fourth quarter of 2007, which included $2.3 million of costs from integration of Con-way’s pre-acquisition truckload operations.
* Revenue of $110.9 million, after the elimination of $38.4 million of inter-company revenues, a decrease of 6.3 percent from 2007 fourth-quarter revenues of $118.4 million.
* Operating ratio on total revenues excluding fuel surcharges (before elimination of inter-company revenues) of 88.1, compared to 92.7 in the previous-year period. The operating ratio on total revenues, including fuel surcharges, was 90.3 compared to 94.1 in the 2007 fourth quarter, including the previously mentioned integration expense.

CON-WAY OTHER

Con-way Other includes the company’s Road Systems, Inc. trailer manufacturing unit as well as other corporate activities. These activities produced a loss during the 2008 fourth quarter, primarily due to activities from the company’s captive insurance program.

2009 OUTLOOK

Due to the uncertainty of the global economy and lack of visibility into future business volumes and market trends, the company is suspending its practice of providing annual earnings guidance.