Dow Jones: Emery Volume Decline Deepens
Dow Jones: Emery Volume Decline Deepens
September 21, 2001 — Steven D. Jones, Dow Jones: "CNF Inc. (CNF) stunned investors Wednesday when it warned that it would lose between 15 cents and 20 cents a share in the third quarter because of continuing declines in air cargo volumes and the costs of grounding its cargo airline and shifting to leased aircraft. Wall Street analysts had expected the carrier to earn 22 cents a share, according to analysts surveyed by Thomson Financial/First Call, even after CNF's Aug. 13 decision to ground its Emery Worldwide Airlines. The net cost of grounding the airline will total $16 million in the quarter, the company disclosed, well above the $10 million many analysts and fund managers expected. News of the pending loss sent shares of the Palo Alto, Calif., company down nearly $2, or 7.1%, to close Wednesday at $25.66 a share. Volume exceeded 864,000 shares, compared with average daily volume of 348,200. CNF also said it would sustain unspecified losses because of the temporary grounding of air freight service in the wake of last week's terrorist attacks in New York and Washington, D.C. Besides the high cost of switching to a leased fleet of aircraft, it appears the decline in freight volume at its Emery Worldwide unit is deepening, not leveling out as many expected."
Jones says, "Statistics from Ohio's Dayton International Airport – Emery's North American hub – show that Emery handled 46,030 tons of freight in August, which was 30.5% below levels of a year ago and a steeper drop than the average 26.5% year-over-year decline in the prior three months. A CNF spokeswoman said that companywide, freight volumes were 'consistent' with trends in Dayton, but the company 'had seen some stabilizing in August and basically up until last week.' Not only is Emery hauling less cargo, statistics show that its switch to leased aircraft created some inefficiency. In August, Emery landed 879 aircraft in Dayton, including a mix of leased and company-owned aircraft used before Aug. 13 and leased aircraft used after that date. That compares with 814 landings in May when Emery handled nearly the same amount of cargo with its own fleet of airplanes. 'Part of this problem is with CNF and part of it is the industry,' said John Goetz, a partner in Pzena Investment Management of New York, the fourth-largest institutional holder of CNF stock with 2.2 million shares. 'This shows the shift (of freight) to trucks and railroads is happening much more than we think,' said Goetz. With the pace of business continuing to slow, companies are using slower, lower cost delivery options, he said. Inventories are not declining so rapidly that companies have to rush goods between factories and to market. 'Just in time' delivery may mean weeks now instead of days." Jones says there may be labor trouble ahead for Emery. Mark Luthi, chairman of Council 110 of the Air Line Pilots Association, "estimated Emery pilots are owed $140 million in wages and benefits through the contract period ending in 2004; income they don't intend to give up." The association has filed grievances alleging Emery has violated its labor contract.
"Regardless of the obstacles, [John] Goetz said CNF may still decide to close its airline. Recent events, including the terrorist bombings in New York and Washington, don't change his fundamental view that CNF will prosper by shifting from a traditional freight-hauling business to one that offers logistics and high-margin transportation services. 'This is a bet on freight forwarding and the less-than-truckload business,' he said, referring to companies that consolidate shipments of a few thousand pounds each. 'That is going to be a good business in the future.'" Source: Dow Jones, Steven D. Jones reporting)
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