New P.A.M. Transportation CEO Looks for a Turnaround

At least on the surface Daniel H. Cushman is the polar opposite of his predecessor.

The new president and CEO of P.A.M. Transportation Services Inc. of Tontitown was open and inviting about talking with the Northwest Arkansas Business Journal. Robert Weaver was not.

But part of Cushman’s plan to lead P.A.M. to profitability again includes extending an olive branch to the media. Coupled with his 32 years in the trucking industry, Cushman’s got a marketing background, so he understands that if you want people to know your story, you’ve got to tell it.

In order to make up for recent losses, Cushman’s got a lot of storytelling to get done. The 54 year-old executive believes he can put P.A.M. on the right track by fixing its fractured brand, restructuring some of its internal functions and diversifying its revenue streams by calling on relationships he’s developed during his career.

By all accounts, P.A.M. had a wreck of a year. The company lost $18.7 million in 2008 and its stock price ended the year at $7, less than half the price it was a year earlier.

The first and second quarters of 2009 were worse. At the end of July the company reported a second quarter net loss of $2.4 million or 25 cents a share compared with a loss of $1.3 million or 14 cents a share for the same period a year prior.

For the first half of 2009, the loss amounted to $5.7 million or 61 cents a share compared to a loss of $4.2 million or 43 cents a share for first six months of 2008.

The truckload, dry van carrier operates a fleet of about 1,800 tractors and has a strong presence throughout the U.S., except the Pacific Northwest, Cushman said.

The ‘Push Man’
Cushman said he got a call in mid-May, which led to his initial interviews with the company. He was officially named president and CEO on July 13 and Weaver’s contract was not renewed.

Starting in 1977, Cushman’s had decade-long stints at Roadway Express Inc. (now Yellow and Roadway), Triple Crown Services and Werner Enterprises Inc. He left Werner as senior vice president and chief marketing officer in 2008 and joined CRST International Inc. in Cedar Rapids, Iowa.

“My decision to come to P.A.M. was easy, once I learned about the company,” Cushman wrote in an answer to some preliminary questions. “I remembered a few years ago they were making money and they are not now.

“I knew that a lot of what ailed P.A.M. was a lack of revenue and strategic market growth. These weaknesses played to my strengths.”

But he was perplexed by P.A.M.’s fragmented branding. According to the company’s annual report, wholly owned operating subsidiaries include: P.A.M. Transport Inc., P.A.M. Dedicated Services Inc., Choctaw Express Inc., Allen Freight Services Inc., Decker Transport Co. Inc., McNeill Express Inc., TTX Inc., Transcend Logistics Inc., and East Coast Transport and Logistics LLC.

“I have friends calling me and they say, ‘What are you president of?’” he said.

Many of those titles were acquired over the years and had meaning in their respective regions. But Cushman has asked customers in those areas if the name matters, and it doesn’t seem to as much as the service. He intends to eventually bring all titles together under one flag to strengthen the company’s marketability.

“I think to a certain extent we have perhaps confused the customer. I think we’ve maybe perhaps confused our internal customer,” he said. “One thing I’m trying desperately to do very quickly is – [tell employees] there’s no silos. We’re one. We are a full-service transportation logistics provider and I want to change the perception that there’s any type of segmentation.”

That includes the perception that the company is primarily an automotive carrier, Cushman said.

“I worry P.A.M. lacks market recognition. We are a very good expedited carrier. We are a good regional carrier. We have an excellent Mexico product. We have a strong dedicated services product,” Cushman wrote. But “we are too dependent on one market, automotive, and are diversifying.”

It’s still early, so Cushman couldn’t discuss too many details about his plans for diversification, but he has his eyes on increasing the pipeline with Mexico. On Aug. 11, he was set to meet his newest employee at the Northwest Arkansas Regional Airport, Fernando Gonzales, a Mexican national who will work in Monterey and help P.A.M. connect with Mexican trucking companies at its terminals in Laredo and El Paso, Texas.

And he’s calling on people he’s met throughout his career, people at companies like The Home Depot, which does not currently use P.A.M.

Asked if he plans to leverage those contacts, he replied with an emphatic “Yes!”

As for internal restructuring, Cushman maintains he’s not looking to chop heads.

“Our strengths are our human resources. I have been very pleased with the caliber of professionals at P.A.M. … (and) we have a very strong financial staff, maintenance team, driver recruiting and safety team and operating organization,” he wrote.

His intentions are to realign some people and look for growth rather than replacement. He plans to hold pizza lunches with different departments to get a feel for what’s needed.

He said he’s already told employees, “I know you know how to make money.”

Floundering Freight
Even if he achieves brand cohesion and uses a Rolodex of contacts, Cushman has a bumpy road to navigate.

The United States Department of Transportation’s Bureau of Transportation Statistics publishes a monthly Freight Transportation Services Index that measures month-to-month changes in freight shipments in ton-miles and combines them into one index.

On Aug. 12, the TSI had no change for June from May (the index number was 94), but the May number is the lowest it’s been since June 1997.

The TSI’s historic peak was in May 2006 when it hit 112.9.

For the first two quarters, the index is down 6.3 percent, the largest historic decrease. (The index is seasonally adjusted and measures changes in monthly averages from the base year of 2000.)

Still, other Arkansas public trucking companies made money in 2008, albeit less than the year before.

J.B. Hunt Transport Services Inc. of Lowell made $200.5 million in 2008, down 5.5 percent from the year prior, and down 8.7 percent from 2006, the TSI’s peak year for freight.

Fort Smith-based Arkansas Best Corp. operates ABF Freight System Inc., the company’s principal operation, which handles a more niche market in less-than-truckload freight. ABF’s net income for 2008 was $29.1 million, almost half of the $56.8 million it made a year earlier and down more than 65 percent from 2006’s high of $84 million.

USA Truck Inc. of Van Buren, made $3.1 million of net income in 2008, up from a mere $140,000 in 2007. But the company made $12.4 million in 2006.

All four of the public trucking companies in Arkansas reported lower revenue and earnings for the second quarter.

Lane Kidd, president of the Arkansas Trucking Association, said the industry is the “first up and the first down” in the economy, so everyone has their eyes on it.

“It would appear we’re bouncing along the bottom,” Kidd said. “There does not seem to be an established [upward] trend.”

However, distilled spirits, beer and wine, are sectors that are doing well. If you happen to be in those industries, Kidd said, you’re probably doing all right.

“It really is about what you’re hauling,” he said. “Smart companies are diversifying.”

Public P.A.M.
In March, Matthew T. Moroun, chairman of P.A.M., bought controlling interest in the trucking firm, according to filings with the Securities & Exchange Commission.

Moroun and his father, Manuel J. Moroun are directors of the company.

The elder Moroun is the president, CEO and principal stockholder of CenTra Inc., a transportation holding company headquartered at Warren, Mich. CenTra is one of the largest privately held transportation holding companies in the United States. He has been a director of P.A.M. since 2004.

Matthew Moroun is vice chairman and director of CenTra. He also is chairman of insurance holding company, Oakland Financial Corp., and its subsidiaries, which are based in Sterling Heights, Mich. He also is chairman of Durarock Reinsurance Ltd. He has served as a director of P.A.M. since 1992 and has served as a member of the board of Universal Truckload Services Inc. since 2004.

The younger Moroun bought an aggregate 106,187 shares through open market transactions and exercising options between March 6 and March 20 for a total personal investment of $509,684, according to the Schedule 13D filing.

He beneficially owns 4,715,373 million shares — 50.1 percent of the 9,409,607 shares of common stock that was outstanding on March 5 — including options to purchase 10,000 more shares.

In the Schedule 13D amendment filed with the SEC on March 6, Moroun disclosed his intention to ask the board, once he attains more than 50 percent beneficial ownership interest, to authorize a repurchase program for up to 1 million shares of common stock and to consider becoming a “controlled company” under Nasdaq Global Market rules, which would not require the company to comply with all the Nasdaq’s corporate governance standards relating to director independence. As of March 25, no such actions have been presented to the board for consideration, the filing said.

“I do not know what the Morouns long term plans are for P.A.M.,” Cushman wrote. “I do know that they are very committed and supportive and already have assisted me in making P.A.M. stronger. They have allowed me access to their personnel and services, and I think it will be an invaluable asset to our company.”

Matthew Moroun, whose offices are at Central Transport Co. in Warren Mich., did not return phone calls seeking comment

Pay Day
Daniel Cushman left Werner Enterprises Jan. 15, 2008, the last time he was employed at a publicly traded company.

For 2007, he drew a salary of $310,770 and a bonus of $245,000. With options and other compensation, his total pay for 2007 was valued at $773,201, according to Werner’s proxy statement.

John Steele, executive vice president and chief financial officer at Werner, declined to discuss Cushman’s performance at the company and deferred to its proxy statements.

The 2008 proxy states Cushman exercised 210,421 vested stock options following the end of his employment, but forfeited 106,250 unvested options.

According to filings with the SEC, Cushman’s salary at P.A.M. was set at $400,000 and he will be eligible for bonuses.

By comparison, Robert Weaver’s salary for 2007 was $501,923, with no bonus or options granted. But in 2006, his total compensation package was valued at $900,861.

Asked if Cushman, a Chicago native with a mid-western accent, will fit into the Arkansas executive trucking landscape, Lane Kidd, president of the Arkansas Truckers Association said, “Sure he will. He will fit in just fine because of what they all do for a living.

“They are in business to move freight and deliver freight on time. Every day you have to prove yourself. These companies deliver hundreds of thousands of loads. He should fit in very well.”