Preston will close 2 trucking units

October 10, 1990|By John H. Gormley Jr.

Preston Corp., an Eastern Shore-based trucking company, announced yesterday that it will close two unprofitable subsidiaries and take a $17 million charge against earnings.

Investors welcomed the decision, sending Preston's stock up 50 cents a share, to $6, on a day the Dow Jones transportation average declined sharply.

Mark A. Roberts, an analyst for Alex. Brown Inc. in Baltimore, said, "We're viewing it as a long-term positive."

Preston said it expects to report a loss of $3.37 a share for the third quarter, which ended Sept. 30. The $17 million charge -- $3.06 a share -- will account for most of the third-quarter loss.

For the year, Mr. Roberts said, he expects the company to post a loss of slightly less than $3 a share. The two unprofitable subsidiaries have been a drag on earnings, he said, and their elimination will brighten the company's longer-term outlook.

"We'll probably see their earnings improve, providing we don't see a recession," he said.

Preston has five trucking units. The two to be closed are Reeves Transportation Co. of Calhoun, Ga., and Pioneer Transportation Systems Inc., of Hurlock, Md.

Preston has 9,200 employees, of whom 10 work at the headquarters. A 1988 annual report for the company lists 432 workers at Pioneer and 908 at Reeves.

Reeves, bought by Preston in 1985, served the carpet industries in Georgia and North Carolina, carrying products to market throughout the United States.

The carpet industry is highly dependent on the construction industry, and Reeves was hurt by the "dramatic decline in new construction and softness in the carpet industry," William B. Potter, Preston's president and chief executive officer, said in a prepared statement.

Pioneer, formed by Preston in 1980, provided van, flatbed and refrigerated service in the East.

Both Reeves and Pioneer were full-truckload carriers. That means their customers generally shipped entire trailers of goods. Preston's three other subsidiaries are less-than-truckload carriers, which typically pick up and deliver smaller shipments. Those smaller shipments are then consolidated at terminals into full trailers for transport to another terminal, where the trailer is unloaded and individual shipments are prepared for delivery.

The two truckload subsidiaries have been hit hard by "problems in the long-haul truckload industry -- rising fuel costs, falling prices charged to customers, higher operating costs and increased insurance expenses," Mr. Potter said.

Dropping the two truckload operations will permit Preston to concentrate on the more successful less-than-truckload operations, he said.

Mr. Potter said third-quarter results, which have not been released, will show that revenues at Preston Trucking Co., Preston's largest subsidiary, increased by 14 percent. The other two less-than-truckload subsidiaries also will show increases, he said, more than 20 percent for Houma, La.-based Saia Motor Freight and 7 percent for Smalley Transportation, Florida's largest intrastate carrier.

Mr. Roberts said the less-than-truckload carriers generally seem to be faring better than the full-truckload carriers.

If the economy can maintain slow growth, Preston -- without the drag of the full-truckload subsidiaries -- should be able to register a profit next year, he said.

Preston currently pays a 50-cent annual dividend, which Mr. Roberts thinks will be maintained.

In Preston's announcement, the company said the closings will require the modification of certain loans but that the sale of the subsidiaries' assets will yield about $15 million that will be used to reduce debts.

Mr. Roberts said the information about debt reduction is reassuring for the company's dividend prospects, since debt covenants often set the terms for dividend payments.

Trading in the stock was fairly heavy, Mr. Roberts said, which he interpreted as a "somewhat favorable" reaction by the market to the closings.

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