Business & Investment

Activists claim “dishonest” disclosure as a result of “substandard” by forward air

Activist Investor Group Seeking Asset Change-Light Truck and Logistics Company ForwardAirNASDAQ: FWRD) I wrote another letter to shareholders on Tuesday. The group provided a summary of Forward’s fourth-quarter performance and a counter-argument to Forward’s view of the recent dialogue between the parties.

The group, led by Ancora Advisors and including Forward founder Scott Niswonger and former CFO Andy Clarke, said, “We are very disappointed with Forward Air’s performance as recent results and guidance continue to be overwhelming.” Told. The group also questioned the timing of Forward’s earnings announcement, suggesting that it postponed the report until the nomination period for directors had passed.

Ancora wants to make changes to its forward capital allocation strategy and to its management and board of directors.The group announced it on Wednesday Nominate 4 candidates For elections to the board after talks between the two parties failed to come up with a consensus solution.

The two sides also failed to agree on the composition of a special committee to oversee capital allocation and Ancora’s request to separate the roles of chairman and CEO.

The group’s treatise states that forward margins and returns lag behind competitors as the company continues to diversify into other services such as intermodal, dragage and final miles. Specifically, Ancora wants to implement operational changes to improve margins, appoint Clark as chairman, and sell the intermodal segment. We would like to use the proceeds from the sale of the intermodal unit along with other available capital to buy back the shares.

Fourth-quarter results show “lack of operational discipline”

The group labeled the company Fourth quarter performanceThe guidance for the first quarter was “substandard” due to the negative effects of cyber attacks.

On Thursday, Forward reported earnings per share of 55 cents. This includes the impact of 19 cents per share on loss of earnings and costs associated with the attack. According to management, revenue would have been above the previous guidance range, except for the increase in revenue associated with attacks and acquisitions.

Ancora said in a letter on Tuesday that the additional revenue from the acquisition is essentially “double counting as the positive impact is reflected in the previously reported results.” Ancora said the results were flat year-on-year, even if he admitted that the quarter was one-off.

The group said its rapid LTL utilization fell 200 basis points year-over-year in the quarter when adjusted for the impact of the attack.

Ancora claims a positive quarterly contribution from the forward final mile segment, half of which Acquisition of Linster By early 2020, it means “zero organic growth.” Ancora considers the lack of last mile growth to be “almost unlikely given the background of the 2020 last mile service.”

In summary, the Group estimates that on an adjusted basis, core organic EPS, excluding acquisitions, was 73 cents per share, down 8% year-on-year.

Accelerated utilization performance degradation

The main concern that Ancora had with the forward was the swift LTL department OR. The letter states that the 2020-promoted LTLOR was further worsened by 425bps compared to other LTLs, with an average improvement of 100bps. According to Ancora, priority LTLOR has declined by 825bps since 2014, while competitors have seen an average improvement of 675bps.

The letter shows that the sector’s operating profit per ton and shipment decreased by approximately 35% year-over-year, compared to the mid-single and top average growth seen by competitors.

Ancora also Forward response In the letter of its first shareholder. Forward has shown that it is pursuing many of the initiatives Ancora has outlined.Ancora is not, and claims to be recent Purchase another intermodal freight company That is proof.

Guidance revealed

Forward’s first-quarter forecast for earnings growth of 11% to 15% and earnings per share of 55 to 59 cents, including costs of 7 cents associated with attacks and “shareholder engagement activities,” is a consensus estimate at the time. I came in the light of. It ranged from 60 to 64 cents. Forward reported an EPS of 41 cents in the first quarter of 2020.

The letter states that while the guidance suggests revenue growth of about 60% year-on-year, the period 2020 was down 35% from the first quarter of 2019 due to the impact of COVID. In addition, comparing the results to the 2019 period, revenue is expected to increase by only 5%, up 25% year-on-year.

The implication of Ancora is that the diversification strategy has led to further reductions in margins. Revenue growth continues to outpace operating profit And revenue growth. This happened during the period when other LTL carriers reported higher incremental margins and held more profits for each additional dollar of revenue.

The letter said, “The results are particularly disappointing,” as Forward made an additional acquisition of approximately $ 100 million, which exceeded the revenue growth seen in the last two years. By comparison, the group states that it is based on current consensus estimates for the first quarter of 2021 compared to the old minion freight line in the first quarter of 2019 (NASDAQ: ODFL) Revenue is expected to increase by 10% and revenue by 45%. Sia (NASDAQ: SAIA) Revenue is expected to increase by 15% and revenue by 65%.

“Ancora directly confirms the core of our treatise that management and the board have, and believes that these calculations will continue to pursue profitability and profit growth over ROIC,” the letter said. Says.

The letter also points out the lack of cost control as it leads to a low incremental margin of net income dollar growth. Over the same period, Ancora estimates that Forward will generate a 9% incremental margin.

“Even after separating the largest variable costs in P & L (purchased transportation), it is very embarrassing for Forward Air to effectively achieve an incremental margin of up to 9% over what is primarily fixed costs. “Masu,” added the letter.

The group points out opportunities for cost rationalization and states that incremental margins should be in the range of 40% to 45%.

“Dishonest” behavior before the submission deadline

Ancora also claims “dishonest communication before the nomination deadline” by issuing separate submissions. The first was submitted on February 3rd and showed the negative impact of cyber attacks on EPS. The second is the February 9th filing, which precedes the appearance at the Investors Conference, which shows monthly indicators, including good performance in January. No mention is made of margins or earnings. That day, FWRD’s share increased by 5%.

“Ancora may have been an attempt to” squeeze “stocks before the nomination deadline by providing an incomplete overview given that financial indicators show strong top-line performance. I’m afraid there is, but no details about margins / earnings are provided. “

The group claims that Forward has never submitted its fourth-quarter results each year prior to this meeting in the past, disclosing tonnage, shipments, and revenue per monthly hedgeredweight. According to the letter, the company issued a “substandard” fourth-quarter performance and first-quarter guide, two days after the nomination period ended.

Last Thursday, after closing on the day the nomination window was closed, Forward submitted its fourth quarter results. Since 2015, forwards have produced results before 4:30 pm, usually at 4:05 pm. What Ancora means is that if the results for the fourth quarter come out before the deadline, other candidates may have come out.

Next step

The group currently holds a 6.3% stake in a $ 2.4 billion company and is advocating ending its acquisition strategy and pursuing the sale of non-core assets, including the intermodal transportation segment. By doing so, you can “kill two birds with one stone”, remove the low-margin segments, and refocus your attention on the traditional high-margin core preferred LTL segments.

Forward’s management argues that the intermodal segment is generating revenues that far exceed the cost of capital, and that this division can drive double-digit revenue and margin growth.

Ancora also pointed out Work done by Freight Waves Last week we outlined a total part valuation of over $ 130 per share. “We believe that the value of ForwardAir per share can be significantly higher than the results achieved by FreightWaves,” he said.

“If the negotiated resolutions that establish the level of change we believe necessary to promote meaningful value at ForwardAir cannot be achieved, we offer shareholders the opportunity to vote for new leadership, We promise to renew our strategy to increase shareholder value. The 2021 Annual Meeting concludes the letter.

In the noon trading, the share price rose 2% to $ 87.85, compared to the S & P 500’s flat.

Activists claim “dishonest” disclosure as a result of “substandard” by forward air Activists claim “dishonest” disclosure as a result of “substandard” by forward air

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