Con-way Revises Earnings Estimate, Reduces Workforce

Dec. 17, 2008
Con-way Inc. has revised its estimate for 2008 full-year earnings from continuing operations to be between $2.20 and $2.35 per diluted share, down from previous guidance of $2.60 to $2.80 per diluted share

Con-way Inc. has revised its estimate for 2008 full-year earnings from continuing operations to be between $2.20 and $2.35 per diluted share, down from previous guidance of $2.60 to $2.80 per diluted share.

The revised guidance excludes the effects of issue-specific charges, detailed below, which are expected to be incurred in the fourth quarter. The earnings guidance is based on an assumed number of diluted shares outstanding of 48.2 million and an expected tax rate of 38.6 percent for 2008.

With two weeks remaining to the end of the year, the company is maintaining a relatively wide range in guidance, due to turbulent market conditions and lack of reliable visibility into an economy which continues to deteriorate, noted Douglas W. Stotlar, Con-way president and chief executive officer.

"While we are focused on aggressive cost-reduction measures, over the past two months the effect of decelerating volumes in the LTL market, coupled with pricing pressures and lower fuel surcharges have significantly curtailed expectations for 2008 earnings, the fourth quarter in particular.”

Since the company's investor conference call on Oct. 23, the decline in year-over-year tonnage at Con-way Freight has accelerated significantly as the economy has continued to deteriorate. In response, Con-way Freight reduced its nationwide workforce by approximately 8 percent, or about 1,450 positions. The reduction is in line with lower tonnage volumes which were down 3.8 percent in October and 9.2 percent in November, respectively, from last year's levels.

The workforce reductions, which occurred on Dec. 5, were spread across most of the company's 303 operating locations in North America. They included the elimination of 78 staff positions at Con-way Freight's Ann Arbor, Mich., general office; 60 positions at an administrative center in Texas; and a realignment of its area and regional division structure to streamline management. The Dec. 5 workforce reductions will result in an estimated fourth-quarter charge to earnings of approximately $7.5 million, primarily for severance and other payroll-related expenses.

The charge for the Dec. 5 workforce reduction is in addition to an earlier-disclosed fourth-quarter charge of $20 million for costs associated with Con-way Freight's network re-engineering initiative. This initiative, which enabled service improvements and more efficient network operations through consolidation of 40 service centers, resulted in a net workforce reduction of about 400 positions. The re-engineering initiative was completed successfully last month without reducing service levels or market coverage.

As a result of the Dec. 5 economic workforce reductions and November's network re-engineering initiative, Con-way Freight expects to realize annualized cost savings in excess of $40 million.

Commenting on the Dec. 5 workforce reduction, John G. Labrie, president of Con-way Freight, noted that with U.S. manufacturing activity at its weakest levels in 26 years, and consumers continuing to restrain retail purchasing, the effect on freight volumes has been dramatic.

"The declines in shipping activity, which we first saw at the end of the third quarter, steepened in October and November, and are continuing in December,” said Labrie. "Comparable business volumes are now at roughly 2003 levels, when we had a workforce of about 17,500 employees.

"While decisions to eliminate jobs are exceedingly difficult, these are steps we must take given an unprecedented economic downturn that affects not only our company, but the entire industry and our customers. Faced with these business conditions we have no choice but to rationalize our cost structure, realign staffing for current volumes and properly position Con-way Freight to execute our strategy, which is focused on delivering customer and shareholder advantage.”

Individuals subject to reduction in force are being offered a separation package which includes severance pay, a lump-sum payment intended to assist with incidental costs and a payment equal to the annual year-end bonus for which a separated employee would have been eligible on Dec. 31.

Con-way's other two principal business units, Menlo Worldwide and Con-way Truckload, have instituted expense-curtailment initiatives specific to their companies. In addition, Con-way's corporate group and enterprise shared-services operations in Portland, Ore., have reduced staffing by 88 positions.

Based on preliminary estimates, the company expects to record an impairment charge of $30 million to $35 million to write down the value of its investment in Chic Holdings Ltd., a Shanghai, China-based transportation and logistics company. Chic Holdings was purchased by Con-way's supply chain management unit, Menlo Worldwide, LLC in 2007 for $60 million. The non-cash impairment charge will be reported with 2008 fourth quarter and full-year results. The charge is based on an impairment review of fair value for goodwill and other intangible assets recorded from the acquisition. The impairment charge relates only to the Chic acquisition. The review is not expected to affect the valuations for Con-way's other two acquisitions in 2007, Cougar Holdings Pte Ltd of Singapore and Joplin, Mo.-based Contract Freighters Inc., which now does business as Con-way Truckload.