Why Shares of Con-way Inc. Are Driving Backwards

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares Con-way (NYSE: CNW  ) are going in reverse as much as 6.5% today following a disappointing fourth-quarter update.

So what: The trucking company reported that when it issues its earnings results on Feb. 5, it expects to show just $0.21 in earnings per share for the fourth quarter, which is similar to last year. Analysts had been expecting Con-way to post a 76% increase in earnings to $0.37 per share. CEO Douglas Stotlar stated, "The month of December presented unique challenges, especially at Con-way Freight and Menlo Worldwide Logistics. This distinct set of issues during the month had a disproportionate impact on the fourth quarter."

The Con-way freight segment's less-than-truckload unit experienced employee benefits and cargo claims expenses that were higher than expected. Bad weather late in the quarter also reduced efficiency which had the consequence of reducing earnings. Its full-truckload operations also were negatively affected by the weather.

Con-way's Menlo Worldwide Logistics segment also saw unanticipated higher expenses due to two new warehousing accounts and the bankruptcy of one of its customers. Business volumes fell off as well compared to customer projections.

The results are disappointing. During the conference call last quarter, CFO Stephen Bruffett mentioned that the company expects the fourth quarter to show a 50% improvement in operating income over last year. Executive Vice President Walter Lehmkuhl also repeated this projection although he did say, "We're not a 1-quarter story. We are a multiyear retooling of this company and we expect to see continued improvement going forward and it's -- and again, it's not going to be a 1-quarter story." This suggests the weakness in any one quarter isn't necessarily something sustainable.

Now what: Stotlar doesn't expect these issues to remain. He added, "We do not expect the majority of these issues to impact our operating results going forward." According to the company, the Menlo Worldwide Logistics issues are being addressed and "significant progress" has been made. Stotlar added, "We do not believe that fourth quarter results were indicative of the path we are on, nor do they reflect the overall progress made this year at Con-way Freight." He believes the company will see improved operating efficiency, increased profitability, and long-term success. The customer bankruptcy has already resulted in a write-off for accounts receivable, but that remains firmly in the past and shouldn't materially affect forward profitability. 

If you take everything from Con-way at face value, the fourth quarter's weakness should have little if any impact on the long term or even 2014. Obviously bad weather could impact future results so keeping an eye on the weather channel may help you gauge first-quarter and full-year 2014 results faster than just watching your favorite stock channel. Analysts expect earnings per share of $2.50 for 2014 for a forward P/E of 16. Given that 2013 earnings per share should come in around $1.65 for 2013, a P/E of 16 would appear cheap considering it includes over 50% in earnings growth.

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