Cannon Fires 50, Attempts U-turn

Cannon Express Inc. of Springdale laid off 50 employees last month in an effort to recover from a downward spiral that began in 1997 and culminated in net losses two out of the last three years.

In ’97, Wal-Mart Stores Inc. of Bentonville decided to bid out its $1.5 billion annual outside trucking contract and gave the majority of that business to J.B. Hunt Transport Services Inc. of Lowell.

As a result, Cannon Express has lost more than $100 million in revenue from Wal-Mart since then, dropping from $54.1 million per year in 1997, when Wal-Mart accounted for 51 percent of Cannon Express’ business, to $13.2 million in 2001. (See chart, Page 18.)

“We heard they were wanting to single source a lot of that business, so they took it away from us and gave it to other companies — gave it to Hunt,” said Dean Cannon, president of Cannon Express, which he founded in 1981. “It’s extremely difficult to recoup from that big of a hit.”

Last year, following a business dispute, three men who had contracted with Cannon Express filed a federal lawsuit trying to force the company into involuntary bankruptcy. The complaint has since been withdrawn, but Cannon said it cost the company millions of dollars, so he has filed a civil lawsuit for damages.

Also in 2001, after auditing the company’s books from 1997, the IRS claimed Cannon Express owes $6 million in fines for back taxes.

Layoffs

Cannon said he laid off 50 employees on March 21 to cut costs and help “return the company to profitability.”

The layoffs amount to 25 percent of the company’s 200 non-truck-driving corporate employees. The company has about 800 drivers. Cannon Express owns 777 trucks and 1,450 trailers.

Cannon said the layoffs affected employees across the board and up to the No. 2 person in the company, Executive Vice President Larry Patrick, 57. Patrick earned more than $168,000 in 2001. He came to Cannon Express from Wal-Mart in 1991.

“He’s like a brother to me,” Cannon said of Patrick. “We were very close.”

Cannon said he and his wife, Rose Marie, will not take a salary for at least three months.

“I don’t think it’s right that everybody else suffers and we don’t as well,” Cannon said. “The purpose of a public company is to provide employment profitably for as long as you can.”

As president and director, Cannon earned more than $455,000 in 2001. As secretary, treasurer and director of the company, Rose Marie made about $80,000 last year.

Cannon said he doesn’t expect the company to return to profitability in three months, but he might resume paying himself and his wife if Cannon Express appears to be well on the way to achieving that goal.

Cannon also said he won’t charge the company rent for the two buildings he owns that serve as corporate headquarters. The company pays Cannon about $6,000 a month in rent for the main 12,000-SF corporate headquarters building and another, smaller structure that previously served as a Seventh Day Adventist Church.

Cannon said he expects the changes, which went into effect March 22, to save the company about $2 million a year.

Cannon said the changes were recommended by outside consultants, who were mentioned, although not by name, in Cannon Express’ annual report filed with the Securities and Exchange Commission on Sept. 28.

“The company has identified numerous cost-cutting measures to eliminate unnecessary overhead … expected to save the company at least $500,000 annually,” the 10-K form stated.

But the cost-cutting may amount to four times that figure.

“This is the conclusion we came to [on March 21], that this is the most helpful thing we can do,” Cannon told the Northwest Arkansas Business Journal. “It’s to lower expenses and protect the well-being of the remaining 900 people.”

Alice Walton, daughter of Wal-Mart Stores Inc. founder Sam Walton, owns about 9 percent of Cannon’s stock. She served on the board of directors for Cannon Express in 1996 and ’97, before leaving to serve on Wal-Mart’s board. A year later, she was convicted of driving while intoxicated in Springdale and moved to Texas soon thereafter.

Wal-Mart Business

The decision by Wal-Mart to bid out its annual outside trucking business has apparently crippled Cannon Express.

After the bidding was over, Cannon Express had lost several “lanes” (or “routes”) it had serviced for Wal-Mart because it wasn’t profitable to underbid other carriers for them, Cannon said.

“They put out a specific bidding process,” Cannon told the Business Journal in 1999, “and it wasn’t profitable to do that extra business with them — below cost rates, and that just wouldn’t work … To maintain the level of service required for the price, we just couldn’t do it. This is a business that deals in pennies. It’s not like we were going to make a lot of money on [the additional Wal-Mart business].”

Cannon said the changes brought about by Wal-Mart’s bidding process were just being felt in 1999. We were getting ready, he said, but you can’t be completely ready for something like this.

Cannon Express still delivers goods for Wal-Mart nationwide, but the amount of revenue the trucking company received from Wal-Mart dropped by 76 percent between 1997 and 2001.

“That’s not even a hiccup to them,” Cannon said in 1999. “They’re going to do what they feel is best for them. It’s not in their best interest to look out for what it’s going to do to some of their vendors. That’s kind of a secondary issue.”

Cannon Express has tried to diversify. International Paper accounted for 14.4 percent of Cannon Express’ business in 1998, but that percentage had slipped to 9.4 by 2000 as the paper company had its own financial troubles.

Cannon said the trucking company has 400 customers.

“We are always scouting for new customers and improving the business we have with existing customers,” he said.

In the meantime, Cannon Express also has had to deal with volatile prices for diesel fuel. The company’s net cost for diesel went from $1.19 per gallon in September 1999 to $1.57 a year later. The price was back down to $1.24 per gallon this past March.

Cannon said the company buys 1.3 million gallons of fuel per month.

Cannon History

Dean Cannon “had run trucks since 1974” as a lease operator with three of his own trucks.

Cannon purchased C.R. Kidd Produce of Springdale in 1981. C.R. Kidd was a refrigerated carrier that hauled produce to stores. The company had five trucks, 20 trailers and 15 lease operators at the time.

By 1986, the company, renamed Cannon Express, had grown to about 100 trailers and still contracted with truck owners for deliveries. In 1997, he purchased 100 trucks and replaced the owner-operated trucks he had been using.

Although Cannon Express is based in Northwest Arkansas, much of its business is spread across America.

“We compete nationally with the industry,” Cannon said. “Very little of our business is local. Most of it is scattered throughout the United States.”

Cannon Express’ stock price on the American Exchange peaked in 1994 at about $16 per share. In late March, it was trading at 78 cents per share. During the past year, the stock’s price has ranged from 36 cents to $2.05 per share.