CFOex Steers Cannon Back From the Brink

Cannon Express Inc. was about out of fumes.

Two days before the truckload carrier would have gone broke, a three-man strike team from CFOex Inc. was called in to attempt a corporate turnaround. That was Aug. 19, and the Springdale company is still truckin’.

Dean Cannon, the troubled firm’s founder, actually started talking in July with the Knoxville, Tenn., financial consulting company about survival options. Two previous consulting efforts had failed, and Cannon Express was at that time reeling from seven straight quarters of net losses. The company has reported four more quarterly losses totaling $13.6 million since then.

But Jim Schnoes, vice president and managing director of CFOex, said 151 local staffers and another 474 nationwide remain employed today thanks to an aggressive, eight-step turnaround plan that has already been accomplished.

“Given what we encountered in August, that’s a lot of cheerful smiles last Christmas and thankful families this summer,” said Schnoes, who’s also the former treasurer of J.B. Hunt Transport Services Inc.

“Personally, that offsets a lot of the resulting sleepless nights and endless travel by the CFOex team. And the rest is offset by our pride in the team of driving professionals and staffers here at Cannon Express.”

The company is by no means out of the woods.

Traded publicly on the American Stock Exchange after dropping from Nasdaq in 1998, Cannon Express was notified on Nov. 15 that it had fallen below that market’s minimum performance requirements to remain listed. The exchange said in its report that the company’s equity had fallen below $4 million and that the financial condition of Cannon Express “has become so impaired that it might not be able to continue operations.”

But on April 30, the exchange accepted a proposal by Cannon Express that aims to get the firm’s finances and operations in order by May 30, 2004. Bruce Jones, president of CFOex, said the extension was crucial since Cannon Express’ losses increased 67 percent from $7.3 million ($2.28 per share) for 2001 to $12.2 million ($3.81 per share) last year.

The firm’s revenue also fell 13 percent year-over-year, from $85.8 million to $79.1 million. Those figures, Jones said, make it hard to say definitively if Cannon Express will survive.

“That hinges on whether or not we can find enough new customers who want to participate,” Jones said. “If we can, there’s a good reason to believe we will succeed long-term. If we can’t, we won’t. That needs to be sooner than later, certainly not ‘years.’ I don’t see how you can continue those kinds of losses without some sort of capital infusion.”

Chaos and Character

Schnoes, a Bentonville resident, said it was retired trucking mogul J.B. Hunt who suggested that CFOex call his old friend Dean Cannon. Initially, Schnoes, Jones and Calvin Turner, a vice president at CFOex, were just supposed to do a viability assessment. But after one day at Cannon Express, Schnoes said the option they suggested was one the firm’s founder wanted to avoid — liquidation.

“It was chaotic,” Schnoes said. “The thing that shocked me most was the degree of poor driver culture. In this business, drivers are everything, but there were signs everywhere at corporate that said, ‘Drivers don’t go here. Drivers go there.’ It felt like they weren’t treated as teammates, like the professional motor carrier operators that they are.

“We started the team-building process immediately.”

Faced with bankruptcy or a sale, Dean Cannon asked CFOex if there was any other option. The team told him wholesale changes in management, sales and marketing might save the firm. Cannon, who could not be reached for comment, chose his employees’ jobs over his own pride and graciously retired. He remains chairman of the board, however, and he and wife Rose Marie still own 60 percent of the company at 1.93 million shares (worth about $559,700 on April 8).

Jones was appointed president and CEO of Cannon Express and received an equity stake, 13 percent of the company with 500,000 shares. Schnoes is the company’s treasurer. Turner is chief operating officer.

Others installed on the new management team include: Dale Wallace, director of terminal operations; Brian Able, vice president of operations; Jeff Beard, director of maintenance; Chuck Kye, director of operations and Mitch Hixon, vice president of sales. CFOex kept on Ernie Davis, director of safety; Gary Ault, director of technology; and Dwane Wormington, Cannon’s longtime CFO.

The focus since August has been on stabilizing the firm’s operations and pushing sales, a department that hadn’t called on some customers in two years. About $3 million in savings was found by renegotiating insurance coverage.

Schnoes said Bob Weaver, president and CEO of truckload dynamo P.A.M. Transportation Services Inc. in Tontitown, recently voiced his admiration for CFOex’s performance.

“[Weaver] said he wouldn’t have given us eight days when we started, and eight months later we’re still rocking.”

What Went Wrong

Cannon Express’ stock topped $15 in late 1994, but it hasn’t traded above $1 since April 2002. It’s been about 30 cents per share since late 2002. The wheels came off in 1999 when Bentonville-based Wal-Mart Stores Inc. put its business with Cannon Express up for bid. During 1998, the firm’s revenue from Wal-Mart business was $51.5 million, or 47 percent of its total. That fell 28.9 percent a year later to $27.5 million, contributing to a 12.8 percent overall revenue drop and a net loss of $487,384 (15 cents per share).

Jones said Cannon Express simply has not been able to replace that freight base. Its second-biggest problem was process and structure, but he said the company was hurt most by the industry’s vicious competition.

“It’s been a tough road, but we’ve made significant improvements,” Jones said. “We’ve added five salesman and implemented analytical tools to help our driver managers and customer service managers make good decisions about what freight gets booked and with what driver on what load.”

Jones said freight restructuring for a trucking firm of Cannon Express’ size typically takes 1.5 years, but the firm is on a tighter timetable because it experienced significant losses before CFOex was hired to lead a turnaround. He would not comment on the possibility of a sale but did say Cannon Express was “actively engaged” in reviewing its options.

The firm retains 616 tractors, although many are tagged to be sold (see chart), and about 1,100 trailers. It dropped the lease on several distribution yards around the country and only maintains its Springdale facility as a terminal. Only 20 jobs, primarily through attrition, have been eliminated, although about 100 were cut before CFOex arrived.

CFOex-Perts

Jones, a CPA with accredited and business valuation (ABV) certification, was J.B. Hunt’s first CFO from 1986 to 1991 when he first worked with Schnoes. Prior to that, he spent a nine-year stint with truckload leader Schnieder National in Green Bay, Wis., and even earlier worked for then-Big Eight accounting firm KPMG.

After leaving J.B. Hunt, he partnered with Fayetteville developer Ben Israel on Family Vision Center, a retail optical business that at its height reached 176 Wal-Mart and Sam’s Club stores. Israel describes Jones as “intense” and of “fine character.”

Jones then got involved in financial consulting and entrepreneurial projects, and in 1998 he co-founded Jones Taylor & Co. in Knoxville, Tenn., to serve the M&A market. That changed to CFOex in 2000, when Jones said the firm determined the $10 million-$100 million trucking segment was underserved for financial consulting. He has helped lead several successful corporate turnarounds.

“This one is the toughest situation by far,” Jones said.

Schnoes, who has other entrepreneurial interests, joined CFOex in 2001. He said on May 1 Cannon Express gave out its million-mile driver awards during a three-day celebration to honor its most important human capital. That was a bright spot for a turnaround that has teetered on the brink.

“There are a lot of doctors, but only so many who like to be in the E.R.,” Schnoes said. “Turnarounds require a unique group of guys because there’s a tall human quotient in a troubled situation. You’re having to fire and hire, and not everyone wants to do that. But I will tell you that every Thursday when I can still sign all those paychecks, that feels pretty good.”