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From Doug S. to all employees:
The theme of our first quarter earnings conference call with the investment analyst community was one I would call a “tale of two quarters” within one.
As we moved through January all the signals told us the quarter was shaping up in one particular direction. Business levels were holding firm. Pricing was competitive but rational. Fuel prices were a growing concern but our fuel surcharge mechanisms were providing recovery. Capacity continued to outstrip demand but we were making progress gaining market share in our trucking segments. Weather was causing issues but nothing insurmountable.
By the time we got into March, those same signals had turned 180 degrees and given us an entirely different picture. Aggressive tactics by some competitors in our transportation businesses started to erode pricing in the market. Tonnage volumes, affected positively earlier in the quarter from truckload carriers parking equipment, and the downsizing of a major LTL competitor, began to flatten for both our LTL and Truckload components. Slack freight demand, coupled with weak growth projections for the economy, reduced expectations for a recovery in 2008. And the unprecedented escalation in fuel prices became unbearable for our customers, putting more pressure on pricing, and rippling through other costs of our business.
Since we were the first to release our results for the quarter, the burden fell to us to explain financial performance and market conditions that were different than analysts’ expectations. As other transportation companies have released results this week, it has only reinforced the tough business environment facing all transportation companies, and the cautious guidance going forward.
Once the dust settled and we completed our conference call, the commentary among the analysts generally followed three key themes:
1) They continue to recognize the quality of our companies, the strength of our business model, and our ability to execute;
2) They understood the cost and yield pressures and the reasons why our first quarter results came in lower than expected;
3) They came away with heightened concern about external market dynamics and the timing of an economic recovery, which now seems further down the road than previously thought, as reinforced by our revised earnings guidance for the year.
Overall, considering the difficult economic and operating environment in the first quarter, I was encouraged with the operational execution at all of our component companies. A few highlights:
Menlo Worldwide Logistics came in above plan. They’re hitting their numbers and we continue to expect 20+ percent growth in net revenues this year, benefiting from acquisitions and continued demand for outsourced logistics. Integration activities with Chic and Cougar continue. Europe in particular is a bright spot, growing 30 percent year over year. The difficult economic times actually have the effect of increasing demand for third-party logistics services, as customers look to cut costs. Menlo is well positioned to take advantage of this trend. Our logistics company has a strong pipeline and is on pace to break last year’s record for new contract wins.
Con-way Freight wrapped up the major components and costs of its business transformation, centralizing its management operations in Ann Arbor. Despite a highly competitive market, pricing pressures and weak demand, our flagship LTL company grew its market share. The Freight team continues to do a good job with the blocking and tackling of the business as evidenced by year-over-year improvement in key measures such as load factor, dock and P&D productivity. The fundamental operations of this company are sound. The systemic problem we’re facing right now is securing compensatory pricing in an environment of weak demand, soaring fuel prices and escalating purchased transportation costs.
Con-way Truckload, in light of the very challenging marketplace, turned in outstanding results. The synergies and benefits we initially expected with this acquisition are becoming apparent. These synergy opportunities enabled Truckload to improve asset utilization and reduce empty miles – accomplishments none of their competitors have been able to match.
Looking ahead, we need to emphasize several important objectives as we continue through the remaining three quarters of the year:
1) We have to reduce our costs across the board. It is incumbent upon every employee to be as efficient and cost-conscious as possible, and to improve performance in everything we do. We will be looking at every business operation, expense category and administrative function for cost reduction opportunities.
2) It is imperative that at each operating location, we execute extremely well across every aspect of the business, at the highest possible levels in order to achieve the financial targets set for your location or business function.
3) Uncompromising, consistent, reliable service is our best weapon. There is no stronger message to the customer than when we exceed the competition in servicing our customer’s needs. It is the true measure of value. No matter what the economic environment, this is what separates us and keep the customers in our camp.
And it all starts with you. This isn’t the first challenging environment that Con-way employees as a team will face and overcome – nor will it be the last. We have the team, the strategies and the financial resources in place to weather the storm. Our employees are the difference, backed by a culture and shared values that reward and honor integrity, commitment and excellence. Thank you for your efforts, and keep up the diligent work on behalf of our enterprise and our customers.
Best regards,
Doug
TO: ALL LOCATION MANAGERS
PLEASE POST THIS MESSAGE IN YOUR NEWS CENTER OR OTHER APPROPRIATE LOCATION SO THAT IT IS AVAILABLE FOR ALL EMPLOYEES TO READ.
The theme of our first quarter earnings conference call with the investment analyst community was one I would call a “tale of two quarters” within one.
As we moved through January all the signals told us the quarter was shaping up in one particular direction. Business levels were holding firm. Pricing was competitive but rational. Fuel prices were a growing concern but our fuel surcharge mechanisms were providing recovery. Capacity continued to outstrip demand but we were making progress gaining market share in our trucking segments. Weather was causing issues but nothing insurmountable.
By the time we got into March, those same signals had turned 180 degrees and given us an entirely different picture. Aggressive tactics by some competitors in our transportation businesses started to erode pricing in the market. Tonnage volumes, affected positively earlier in the quarter from truckload carriers parking equipment, and the downsizing of a major LTL competitor, began to flatten for both our LTL and Truckload components. Slack freight demand, coupled with weak growth projections for the economy, reduced expectations for a recovery in 2008. And the unprecedented escalation in fuel prices became unbearable for our customers, putting more pressure on pricing, and rippling through other costs of our business.
Since we were the first to release our results for the quarter, the burden fell to us to explain financial performance and market conditions that were different than analysts’ expectations. As other transportation companies have released results this week, it has only reinforced the tough business environment facing all transportation companies, and the cautious guidance going forward.
Once the dust settled and we completed our conference call, the commentary among the analysts generally followed three key themes:
1) They continue to recognize the quality of our companies, the strength of our business model, and our ability to execute;
2) They understood the cost and yield pressures and the reasons why our first quarter results came in lower than expected;
3) They came away with heightened concern about external market dynamics and the timing of an economic recovery, which now seems further down the road than previously thought, as reinforced by our revised earnings guidance for the year.
Overall, considering the difficult economic and operating environment in the first quarter, I was encouraged with the operational execution at all of our component companies. A few highlights:
Menlo Worldwide Logistics came in above plan. They’re hitting their numbers and we continue to expect 20+ percent growth in net revenues this year, benefiting from acquisitions and continued demand for outsourced logistics. Integration activities with Chic and Cougar continue. Europe in particular is a bright spot, growing 30 percent year over year. The difficult economic times actually have the effect of increasing demand for third-party logistics services, as customers look to cut costs. Menlo is well positioned to take advantage of this trend. Our logistics company has a strong pipeline and is on pace to break last year’s record for new contract wins.
Con-way Freight wrapped up the major components and costs of its business transformation, centralizing its management operations in Ann Arbor. Despite a highly competitive market, pricing pressures and weak demand, our flagship LTL company grew its market share. The Freight team continues to do a good job with the blocking and tackling of the business as evidenced by year-over-year improvement in key measures such as load factor, dock and P&D productivity. The fundamental operations of this company are sound. The systemic problem we’re facing right now is securing compensatory pricing in an environment of weak demand, soaring fuel prices and escalating purchased transportation costs.
Con-way Truckload, in light of the very challenging marketplace, turned in outstanding results. The synergies and benefits we initially expected with this acquisition are becoming apparent. These synergy opportunities enabled Truckload to improve asset utilization and reduce empty miles – accomplishments none of their competitors have been able to match.
Looking ahead, we need to emphasize several important objectives as we continue through the remaining three quarters of the year:
1) We have to reduce our costs across the board. It is incumbent upon every employee to be as efficient and cost-conscious as possible, and to improve performance in everything we do. We will be looking at every business operation, expense category and administrative function for cost reduction opportunities.
2) It is imperative that at each operating location, we execute extremely well across every aspect of the business, at the highest possible levels in order to achieve the financial targets set for your location or business function.
3) Uncompromising, consistent, reliable service is our best weapon. There is no stronger message to the customer than when we exceed the competition in servicing our customer’s needs. It is the true measure of value. No matter what the economic environment, this is what separates us and keep the customers in our camp.
And it all starts with you. This isn’t the first challenging environment that Con-way employees as a team will face and overcome – nor will it be the last. We have the team, the strategies and the financial resources in place to weather the storm. Our employees are the difference, backed by a culture and shared values that reward and honor integrity, commitment and excellence. Thank you for your efforts, and keep up the diligent work on behalf of our enterprise and our customers.
Best regards,
Doug
TO: ALL LOCATION MANAGERS
PLEASE POST THIS MESSAGE IN YOUR NEWS CENTER OR OTHER APPROPRIATE LOCATION SO THAT IT IS AVAILABLE FOR ALL EMPLOYEES TO READ.