Second quarter net income at Con-way is down

Second quarter results for transportation and logistics services provider Con-way Inc. were a bit of a mixed bag, according to the company’s earnings announcement today.

Net income of $13.9 million—or $0.26 per share—was off 55.8 percent year-over-year, while revenue—at $1.31 billion—was up 23.7 percent. Operating income—at $35.4 million—was down 46.6 percent.

Con-way President and CEO Douglas W. Stotlar said on an investor conference call today that each of the company’s business segments was impacted differently by a generally improving economic environment.

This was particularly evident, he said, for Con-way Freight, the company’s less-than-truckload (LTL) unit.

“Demand significantly exceeded our forecast [for Con-way Freight] as the result of an unexpectedly strong economy,” said Stotlar. “Our volumes reached record levels starting in March and continuing through the second quarter. This presented several challenges, most notably the pace at which volumes came on created a significant hiring need.”

In the second quarter, Con-way Freight hired 3,200 new employees, whom were on-boarded, coupled with labor costs associated with higher volumes increasing, as well as higher costs due to overtime, rental expenses, and purchased transportation.

Quarterly revenue at Con-way Freight—at $817 million—was up 25.8 percent, with yield down 2.1 percent year-over-year—6.4 percent excluding fuel surcharge. Tonnage per day increased 29.2 percent, and operating income of $17.2 million was down compared to $49 million last year.

“One of our goals during the quarter was to relieve some of the pressure on our system while working to moderate our record volumes,” said Stotlar. “As we progressed through the quarter on a year-over-year basis, April tonnage per day was up 37 percent, May was up 28 percent, and June was up 23 percent. We expect to see sequential volumes moderate through the rest of this year, as we continue to focus on increasing price.”

Stotlar said that Con-way is seeing modest improvement, due to stronger demand, industry actions, and Con-way’s own specific initiatives. He added that benefits, strong demand, and improving pricing were offset by increased operating costs related to record volumes in the Con-way Freight network. And the task of moderating record volume while increasing price will take time to resolve and will curtail expectations for operating margin expansion in the near-term.

Other unit results: Quarterly revenue at Menlo Worldwide, Con-way’s third-party logistics unit—at $385.8 million—was up 17.8 percent, and net revenue of $142.8 million was up 12.1 percent. Menlo’s operating income of $13.0 million was up 66.8 percent year-over-year.

Quarterly revenue at Con-way Truckload—at $145.5 million—was up 1.5 percent year-over-year, and Con-way officials said the annual increase was due to higher fuel surcharges and improved revenue per loaded mile. But they noted that offsetting the increase was the negative effect of lower total miles in the quarter, which reduced revenue (excluding fuel surcharges), and a higher proportion of empty miles resulting from fleet repositioning activities. Operating income at Con-way Truckload—at $5.1 million—was down compared to $6.9 million last year.

“Con-way’s efforts in 2009 to build network density through a more aggressive pricing strategy has produced undesirable results, with 2Q Freight margins hampered with low-yielding freight and excessive costs absorbed to support record business levels,” wrote Robert W. Baird analyst Jon Langenfeld in a research note. “Encouragingly, Con-way has begun to focus its efforts on improving yields, which we view as positive for the company and the industry. We expect the effects from 2009’s pricing decisions to remain a headwind to Con-way’s yield growth, as efforts to trim unprofitable freight will likely take multiple quarters.”