Sluggish freight volume and intense pricing pressure forced Carolina Freight Corp. to cut its 1987 estimates for revenue growth and capital spending, the company announced.
Carolina, parent of Carolina Freight Carriers Corp., the nation's seventh largest truck line, reduced its full year revenue projection to $600 million
from $620 million.The Cherryville, N.C., holding company generated $591.3 million in revenue in 1986.
We've noticed since the beginning of the year that revenue levels were not up to our expectations, said Palmer Huffstetler, the company's senior vice president and general counsel.
When we reviewed our projections, it became fairly apparent that $600 million would be more attainable, he added.
Carolina also said it would scale back this year's capital spending from $53 million to $41 million.
The less business you have, the less demand there is for rolling stock, Mr. Huffstetler said. As a result, we've pared back considerably our equipment purchases.
Basically, Carolina is not expecting much of a boost in tonnage over last year's second quarter, said George Morris, a transportation analyst with Prescott, Ball and Turben in Cleveland. And, of course, the rates will be a minus, he added.
Major less-than-truckload carriers like Carolina currently are caught in the most severe rate war since the trucking industry was deregulated in 1980.
Less-than-truckload fleets fill a trailer with freight from several different shippers.
Despite the tense pricing environment, Carolina outperformed most other major truck lines during the first quarter. The company was one of the few to show an increase in operating income over the same period a year earlier.
Richard Holt, an analyst with Prudential Bache Securities in New York, is encouraged by Carolina's lower revenue estimate.
They are the first carrier to show me a desire to walk away from unprofitable traffic, he said. I think that's why they did well in the first quarter.
Carolina said it would continue its aggressive expansion programs despite the cuts in capital spending.
We're going to continue opening new markets and converting some of our agency terminals to company-owned, Mr. Huffstetler said. In all of our subsidiaries, we're going to open 30 new terminals this year.
In addition to Carolina Freight Carriers, its chief operating unit, the parent corporation also owns G.I. Trucking Co., Red Arrow Freight Lines Inc. and Cardinal Freight Carriers.
Carolina said its revised spending estimate of $41 million includes $16 million for trucks and trailers, $18 million for land and structures and $7 million for other equipment purchases.
Carolina is the third major trucking company in recent weeks to announce a reduction in capital spending.
Yellow Freight System Inc., the nation's largest general freight motor carrier, said it will reduce its estimated capital expenditures from $190 million to $165 million.
Arkansas Best Corp., parent of ABF Freight System, also announced it is reviewing its spending programs for 1987.
Everybody is saying, 'Look, the price cutting is too tough a battle, there's no let up in sight, so let's keep as low a profile as possible,' Mr. Morris said.
I think these carriers want to keep things on an even keel during this time of turmoil, he added.
Mr. Holt said most of the capital reductions seem to involve reduced equipment purchases. But he doesn't expect the fleets to be hurt by the cutbacks.
Look at the age of the vehicles, he said. The average age of the linehaul tractors at ABF is just 1.8 years. It's brand new equipment, he said.
During the first quarter, Carolina's less-than-truckload freight volume grew 4 percent. Mr. Holt is projecting 5 percent expansion in the second quarter and 7 percent growth for the full year.
Analysts suggested Carolina prospered in the first quarter because it is not competing in the longer haul traffic lanes where price discounting is most severe.
Roadway Express Inc. and Yellow Freight, major long haul carriers, reportedly have been fueling the freight rate discounting.
But Carolina officials said privately they are experiencing tremendous rate pressure and do not accept the argument that discounting is more moderate in their markets.