Prudent P.A.M. Buys ?Em Cheap

P.A.M. Transportation Services Inc. is a bargain shopper.

The truckload carrier’s acquisition of McNeil Trucking Inc. of Little Rock is the latest in a line of what appear to be prudent buyouts of good or salvageable companies.

The total costs of its latest two acquisitions, McNeil and East Coast Transport and Logistics Inc. of Paulsboro, N.J., have not yet been disclosed (see chart). According to P.A.M.’s March 31 annual report, it has thus far paid East Coast, primarily a freight brokerage business, a $6.5 million “installment” that included $1.5 million in cash.

Regardless of the final tally, analysts say it’s the Tontitown firm’s M.O. to get a serious bang for its buck. Chaz Jones, an analyst at the Little Rock securities firm Stephens Inc., said P.A.M. also only opens its wallet for acquisitions that make perfect sense for its business mix.

“It’s just been their philosophy to not pay a lot up front, but to go after things that fit into their core operations at a good price,” Jones said. “They find someone whose business matches up well with theirs. It might be a customer-specific traffic lane that needs to be filled, such as a company that has trucks in a certain location that would give P.A.M. the density needed to fill out a network and make it more profitable.

“Firms that paid too much for acquisitions during the last decade have been the ones struggling. How P.A.M. has managed to get good buys would be a question for P.A.M.”

Bob Weaver, P.A.M.’s president and CEO, did not respond to requests for information.

Jones said in the case of Choctaw Express, a $2.5 million acquisition in 1995, P.A.M. simply got tired of battling a tough competitor. Choctaw was a great company, Jones said, and it continues to operate as one of the best business units in the industry. Then in 1996, when P.A.M. bought failing Allen Freight Services, it got a steal, paying only $200,000 for a firm that despite a cash crunch had $16 million in annual revenue.

Jones, whose firm has previously managed underwritings for P.A.M., said in addition to being thrifty, the general commodities carrier has another advantage over competitors. P.A.M.’s core dedicated contract business buffers it from down economies like the nation has experienced during the last two years.

The company serves a number of automotive parts manufacturers who use just-in-time (JIT) inventory technologies to manage their supply chains.

“Auto parts plants don’t interrupt their JIT scheduling,” Jones said. “P.A.M.’s trucks are scheduled to move at specific times, and because they’re on dedicated contracts they’re paid regardless of whether their trucks are empty or full. So what happens if the auto market weakens, P.A.M.’s trucks just aren’t as full and they get paid the same. It’s a great model, even in softer economies.”

P.A.M. has outperformed its segment during the last two years. At a time when many companies were forced to consolidate, P.A.M. increased its profit 16.1 percent from $8.7 million in 2001 to $10.1 million in 2002.

Times have been so good, P.A.M. plans to splurge $36.4 million on 500 new tractors and 770 new trailers this year. It is also expanding its corporate headquarters.

Record high diesel prices in March hurt P.A.M.’s first quarter earnings. But the firm still cut its empty-mile factor to 2.87 percent and decreased its debt.

P.A.M. employs 2,540 people and serves the continental United States, Mexico and the Canadian provinces of Ontario and Quebec.