Paul Svindland takes over at critical time for truckload carrier
The announcement two weeks ago of Paul Svindland as the new CEO of Celadon Group ( NYSE:CGI) has been generating positive industry reaction and it has swayed some investment houses, such as Zack’s Investment Research, to shift the company’s stock from hold to buy.
Svindland officially takes over for Paul A. Will today at a time when the company is facing a number of issues, particularly concern over its financial statements. Earlier this year, the company’s auditors, BKD LLP said the financials “should no longer be relied upon.”
According to Indianapolis Business Journal, the situation came about after the Securities and Exchange Commission sent three letters seeking clarification on the company’s large truck-purchasing-and-leasing business.
“Public company investors deserve transparency in accounting,” the Journal wrote. “But Celadon’s disclosures became decidedly more opaque after October 2015, when it set up an off-balance-sheet joint venture called 19th Capital. After Celadon bought new tractors and lined up truckers to lease them, it sold the trucks and leases to 19th Capital. Celadon executives owned stakes in 19th Capital entitling them to a share of its earnings—a potentially lucrative arrangement that could spur management to favor the JV over Celadon itself.”
That led to BKD’s decision and a flurry of negative policy surrounding the company.
Will has retired as CEO and chairman of the board, but will remain as a consultant through July 2018. He has been CEO since 2012 and chairman since August 2015. Lead independent director Michael Miller replaces Will as chairman.
In addition, Johnathan Russell, the former president of Celadon Logistics and the son of company founder Stephen Russell, has taken over as COO, replacing Eric Meek, who, resigned in May.
But it is Svindland who will handle the bulk of the duties to turn around the firm, which saw its stock price drop from more than $9 a share early this year to $2.35 a share on the day Svindland was hired. The stock closed Friday at $4.
“Paul was previously a [managing director] of Alix Partners, which does a lot of work with truckload companies and he’s done a lot of work turning around [trucking companies],” John Engstrom, associate analyst of transportation & logistics for Stifel, told FreightWaves. “He has a lot of experience in the industry, he’s well connected and well-respected.”
Svindland served previous stints as chairman & CEO of EZE Trucking and as COO of Pacer International. He is currently chairman and CEO of Farren International Holdings.
One of the challenges Svindland faces is balancing the need to turn around the carrier’s operations, which includes some 3,000 truck asses and 12,000 leased assets, and restoring the public image and trust among shippers.
“He’s going to have to walk a tightrope,” Engstrom says. “He needs to both turnaround a trucking company and turn around an image to the investors and shippers.”
Engstrom noted that one of the operational challenges Celadon faces is its empty miles, which is “almost mid-teens, which is almost double competitors” in the truckload market.
“He is a great operator and also a great guy,” Engstrom notes. “Celadon is a classic, large truckload carrier and they’ve had some technological and operational challenges the last few years…They needed a fresh start.”
Inside the company is Johnathan Russell, who is now COO, and Svindland will need to work with him to restore the credibility of the carrier.
“It’s critical that they form Batman and Robin, work well together and repair the company,” Engstrom says. “Paul conveyed to me that he and Jon will be working in tandem with a shared vision to rebuild the organization into the blue chip truckload carrier Celadon is known to be. And Jon is [serious about] repairing his father’s legacy.
Engstrom says the situation Celadon finds itself in requires a particular skill-set. “[Svindland’s] a tremendous candidate for this role,” he says. “Filling this role takes a very special type of person, and it’s a short list, and he’s on it.
“We’re very optimistic about the future of Celadon,” he adds.