Looking For Value In Trucking

by: Alex B. Gray

Apparently, the management of trucking company Celadon Group, Inc (NYSE:CGI) sees value in USA Truck, Inc. (NASDAQ:USAK). On October 11, CGI reported that it owned 658,000 shares, or approximately 6.29%, of USAK. According to the filing, CGI purchased the shares because the CGI Board of Directors believed the price of USAK stock represented a potentially attractive investment at recent prices. CGI paid an average price of $7.08 per share for its investment in USAK. Below is the text from Item 4 - Purpose of Transaction as stated in the Schedule 13D filed by CGI with the U.S. Securities and Exchange Commission.

Celadon Group acquired the Common Stock reported in this Schedule 13D because its board of directors believed the Issuer's Common Stock represented a potentially attractive investment at recent prices. The average investment price of $7.08 per share, including commissions, represents approximately 55% of the book value per share of the Issuer's Common Stock as reflected in the most recent publicly available financial statements. Based on publicly available information, Celadon Group believes there is an opportunity to realize value for its stockholders from this investment.

Celadon Group's board of directors and management team believe the truckload industry offers consolidation and other strategic opportunities as successful companies seek, among other things, additional capacity and services for customers, more diverse routes for drivers, and greater value and liquidity for investors. Celadon Group recently requested a meeting with the Issuer's management to discuss a possible association between Celadon Group and the Issuer, potentially including a combination of the two companies. Depending on the outcome of these discussions, any such association, alliance or business combination could result in one or more of the events set forth in Items 4(a) through (j) of Schedule 13D. Celadon Group has not had any discussions of these matters with the Issuer's management or board of directors to date and does not know whether the Issuer would entertain any such discussions. Moreover, Celadon Group has not had the opportunity to evaluate whether or how the Issuer's operations might be complementary to its operations and has not formed any opinion as to whether the Issuer would offer an attractive strategic fit.

Celadon Group intends to routinely monitor and assess, among other things (i) the financial condition, operations, prospects, capital structure, and management of the Issuer, (ii) the value and price of the Common Stock, (iii) relevant business developments, competitive and strategic matters, and prevailing industry and market conditions, (iv) alternative investment opportunities available to Celadon Group, (v) its liquidity requirements, and (vi) other investment considerations. On the basis of such assessments, Celadon Group may, at any time and from time to time, take such actions with respect to its investment in the Issuer as it deems appropriate, including, without limitation, (I) proposing measures which it believes would enhance stockholder value, (II) seeking representation on the board of directors of the Issuer, (NASDAQ:III) purchasing additional Common Stock and/or other equity, debt, notes, instruments, or other securities and/or derivative securities relating thereto (collectively, "Securities") of the Issuer, (IV) disposing of any and all of its Securities in the open market or otherwise, (V) engaging in any hedging or similar transactions with respect to the Securities, (VI) selling some or all of any Securities of the Issuer held by Celadon Group, (VII) proposing an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries, or (VIII) otherwise changing its intention with respect to any of the matters referenced in this Item 4.

Except as set forth in this Item 4, Celadon Group has no present plans or proposals that relate to or would result in any of the actions required to be disclosed in this Item 4.

In the filing, CGI makes note that its average purchase price of $7.08 per share represented approximately 55% of book value and believed it could realize value for its shareholders through this investment. USAK shares are up approximately 35% since CGI bought its shares and were up approximately 20% the day of the filing. However, CGI goes on to state that its intentions may go beyond investment purposes and could go as far as a possible combination.

Due to depressed stock prices, both CGI and USAK are worth a closer look. However, several other players in the trucking industry are trading at depressed levels so it may be worth looking at a few other trucking companies that currently trade at or below book value.

Of course, stocks trading at significant discounts to book value can be a sign of significant problems and would require complete due diligence on the company and its operations. In addition, all but one of the stocks below has a market capitalization of less than $100 million, adding additional risk to the selections.

Covenant Transportation Group, Inc. (NASDAQ:CVTI) is headquartered in Chattanooga, Tennessee and provides truckload carrier services to transportation companies as well as traditional truckload customers. Through its subsidiaries, CVTI offers expedited, regional and refrigerated carrier services as well as brokerage and leasing services.

CVTI reported second quarter ended June 30, 2011 freight revenue decreased 5.5% to $133.6 million while net income dropped 41% to $1.7 million or $0.11 per share. CVTI recently announced that it will most likely report a loss for the third quarter in the range of $0.5 million to $1.7 million and that it may be in violation of a covenant of its revolving credit facility.

The stock is currently trading at roughly 50% of book value of $6.77 per share. It should be noted that CVTI carries $11.54 million in goodwill on its balance sheet which reduces tangible book value to $5.99 per share. The stock is currently trading at 55% of tangible book value.

Frozen Food Express Industries, Inc. (NASDAQ:FFEX) is a Dallas, Texas based transportation company that primarily offers temperature-controlled truckload and less-than-truckload services. The company recently announced it will be exiting the dry freight business and selling approximately 435 dry van trailers and 290 tractors using the proceeds to reduce debt. However, the company will still handle some dry freight though its fleet of approximately 3,250 temperature-controlled trailers. FFEX also offers certain brokerage and logistics services.

For the second quarter ended June 30, 2011 FFEX reported a 1.7% decline in operating revenue (excluding fuel surcharges) to $78.6 million. In addition, the company reported a second quarter net loss of $3.3 million or ($0.19) per share compared to a net loss of $4.4 million or ($0.26) per share in 2010. FFEX intends to trade 240 of its older tractors for new units in an effort to reduce its fleet age as maintenance on the older fleet is a major expense.

The stock has dropped significantly over the last few months and is trading at approximately 41% of book value.

P.A.M Transportation Services, Inc. (NASDAQ:PTSI) is a nationwide dry freight truckload carrier based in Tontitown, Arkansas. The company primarily hauls consumer goods, automotive parts and manufactured goods. PTSI also provides brokerage and logistical services as well as direct service into Ontario and Quebec.

PTSI reported that its second quarter ended June 30, 2011 saw operating revenues (excluding fuel surcharges) increase a modest 3.5% to $74.5 million while net income skidded 45% to $693 thousand or $0.08 per diluted share.

PTSI is currently trading at approximately 68% of book value. In September the company announced it had completed a 500,000 share repurchase program and further announced that a new 500,000 share repurchase program had been authorized.

Saia, Inc. (NASDAQ:SAIA) is a Johns Creek, Georgia provider of regional, interregional and guaranteed less-than-truckload services in 34 states with 148 U.S. terminals.

SAIA saw its second quarter ended June 30, 2011 revenues increase 15% to $266 million and net income jumped 70% to $3.4 million or $0.21 per diluted share. SAIA management continues to see continued improvement in its overall business environment including pricing strength. However, the company has also seen increased insurance, health care, purchased transportation and maintenance costs.

After an approximately 30% increase in the company's stock price since its lows of last week the stock is now trading at just a slight discount to book value.

Vitran Corporation, Inc. (VTNC) provides less-than-truckload (LTL) freight services to customers throughout Canada and the United States and is based in Toronto, Ontario. In addition, the company provides logistics and brokerage services.

VTNC reported second quarter ended June 30, 2011 revenues increased 23.1% to $208.9 million on the strength of its Canadian LTL operations and record results put in by its supply chain operation. However, its U.S. LTL operations had a challenging year which were compounded by the acquisition of Milan resulting in a overall net loss from continuing operations of $2.3 million or ($0.14) per share.

The stock has been crushed since July of this year to trade just under $5 per share after trading at over $15 per share earlier in the year. After this punishment the stock is trading at approximately 79% of book value. However, after eliminating intangible assets and goodwill and a recovery in the stock price at the end of last week, the stock is trading slightly above tangible book value.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.