It’s a Bumpy Road Ahead for Transcon

Reports of pending rate hikes in the trucking industry might have been expected to give a lift to Transcon, an Orange-based freight hauler that has seen its profits disappear during a yearlong price war.

Yet Transcon’s stock continues to skid. The stock traded Friday for as little as $3.50 per share--a 52-week low--before closing at $3.75, up 12.5 cents for the day but down 25 cents for the week.

Although virtually all common stocks suffered in last week’s market decline, a close look at the trucking industry shows that rate increases probably would not boost business or shore up stock prices, even if the market were stable.

Freight haulers, which have faced increased competitive pressures since their industry was partially deregulated in 1980, began fighting it out last year after Kansas-based Yellow Freight System cut its rates. Another industry giant, Roadway Services of Akron, Ohio, retaliated with its own rate reductions, and other firms soon entered the fray.

Since the rate war began, large companies have struggled to remain profitable, and most smaller companies have lost money. A half-dozen small firms collapsed in the battle.

To ameliorate the problem, Palo Alto-based Consolidated Freightways, the nation’s largest hauler, and several other companies said last week they intend to raise rates by 3.5%.

But trucking industry analysts said they aren’t sure that the higher rates will stick. Even if they do, however, they might not be enough to patch up the industry’s problems.

Analysts said it may take failures of larger firms for the industry to return to profitability.

P-I-E Nationwide of Jacksonville, Fla., the nation’s fourth-largest trucking company, might be the weakest of the large haulers, according to George G. Morris, a trucking analyst at the investment firm of Prescott Ball & Turben in Cleveland. P-I-E, which lost $16.1 million in the first six months of 1987, has announced plans to scale down its business.

Analysts said the industry will continue to see smaller trucking firms fall by the wayside.

So where does that leave Transcon, which, after several years of profitability, reported a loss of $8.6 million for the first six months of 1987?

“They’re under siege, but they’re going to be a survivor,” said Burton Strauss Jr., a trucking analyst at E.F. Hutton in New York.

And Andras Petery, an industry analyst at Morgan Stanley in New York, said that Transcon is one of the best capitalized of the smaller trucking companies.

Transcon, which reported sales of $343.4 million last year, listed assets of $149.1 million as of June 30; its long-term debt stood at $41.5 million on that date.

Still, Transcon and other smaller truckers will continue to find it difficult to compete against large companies, analysts said. The smaller firms have weaker distribution lines and fewer economies of scale than the big freight haulers.

As long as the road ahead remains bumpy, analysts said, they don’t expect stock prices to rise anytime soon.

Morris said Transcon’s stock price will continue to slide until the firm posts a profit. He said that Transcon might be also considered a takeover candidate--with 6 million shares, the company’s current market capitalization is about $22 million--but he said he considers an acquisition unlikely because of the uncertainty of the firm’s future.

Further, prospective bidders could have a tough time wrestling shares from employees, who own about 49% of the company.

“These trucking companies are still in a self-destruct mode,” Morris said. “People aren’t saying, ‘Let’s go invest in a trucking company today.’ ”