A group of investors is looking to shake things up at expedited trucking company Forward Air (NASDAQ: FWRD), according to filings with the U.S. Securities and Exchange Commission.
Cleveland-based Ancora Advisors has taken on an activist role alongside former Forward founder Scott Niswonger and former CFO Andy Clarke. The group seeks to “enhance shareholder value” through a variety of measures including changes to the management team and board as well as capital allocation strategy. The documents also signaled the potential divestiture of “non-core assets.”
The filings show that the investment group began acquiring shares in the Greeneville, Tennessee-based company at the end of October and now holds a 5.3% stake, $89.5 million, in Forward’s 27.5 million outstanding shares, which represents more than $2 billion in market capitalization.
The group has met with Forward’s board and management team and will continue to engage in discussion to “create shareholder value,” according to the documents. The group is also talking with other shareholders and third parties, “including potential acquirers and service providers.”
“Forward Air regularly engages in open communications with shareholders and prospective investors to better understand views on the company’s strategy and progress,” a company spokesperson said in a statement to FreightWaves. “While it is the company’s policy not to comment on the specifics of discussions with individual shareholders, members of the company’s board and management team have held discussions with Ancora and intend to continue engaging in a constructive manner for the benefit of all shareholders.”
Ancora, predominantly a family wealth investment advisory firm and fund manager with $7.8 billion in assets under management, is run by Chairman and CEO Fred DiSanto. The company’s website lists “small cap activist” as part of its products and strategies.
Niswonger formed other transportation companies in the past, including cargo airline General Aviation and Forward’s predecessor, Landair Services. Forward and Landair were split into two publicly traded companies in 1998. Landair was acquired by Covenant (NASDAQ: CVLG) in 2018. Niswonger currently heads an educational foundation bearing his name.
Clarke has held various leadership roles in transportation since he was CFO at Forward. He ran time-sensitive, mission-critical carrier Panther Expedited Services, which was acquired by ArcBest (NASDAQ: ARCB) in 2012, and was the CFO at freight broker C.H. Robinson (NASDAQ: CHRW) for a four-year stretch ending in 2019. Clarke is currently the chairman of intermodal chassis provider Direct ChassisLink.
Management retooled corporate strategy in 2020
The current management team may have sensed the need for improved stock performance ahead of the recent activist buying activity. Although not a true less-than-truckload comp given its airport-to-airport network, shares of Forward were up only 10% during 2020 compared to other LTL carriers like Old Dominion (NASDAQ: ODFL) and ArcBest, which recorded increases of more than 50%, or Saia (NASDAQ: SAIA), which saw shares nearly double.
Under current Chairman, President and CEO Tom Schmitt, Forward has taken a no-wait approach to both organic initiatives and acquisitions. In July, the company announced plans to offer traditional LTL service outside of its normal airport-to-airport LTL offering, which handles the movement of airfreight by ground through scheduled and expedited service for airlines, cargo carriers and freight forwarders.
The new plan includes leveraging current terminals already operating in the network as well as new facilities to move LTL freight separate from its airport operations, which have been negatively impacted by declines at the airlines and cruise lines during the pandemic.
The company has also been actively expanding through acquisition, making small tuck-in additions like intermodal drayage outfit Value Logistics in October and final-mile provider CLW Delivery in September. Those deals followed the acquisition of final-mile providers FSA Logistix and Linn Star Holdings in 2019.
Forward also announced plans to divest its pool distribution unit in April, citing the capital-intensive demands of operating the segment, which makes high-frequency, time-sensitive shipments to several locations within a defined region for national retailers and distributors.
Earnings decline and lagging comps
During the third quarter of 2020, Forward handily beat analysts’ forecasts, recording earnings per share of 61 cents from continuing operations versus consensus of 40 cents per share. However, net income fell 20% on a year-over-year comparison and the company’s operating ratio, expenses expressed as a percentage of revenue, deteriorated 230 basis points to 91.7% in its expedited operating segment.
By comparison, Old Dominion reported 480 bps of improvement to a new company-record OR of 74.5%, with Saia reporting 180 bps of improvement, posting an 88.5% OR. One of the biggest obstacles for Forward in the quarter was a 440-bp increase in purchased transportation costs compared to only modest increases noted by the other carriers. On its earnings call, management referenced several surcharges that had been implemented to offset rising capacity costs, but acknowledged procuring capacity “almost no matter what it costs” to meet customer commitments.
Forward also reported a 30% decline in intermodal operating income, with the unit’s operating margin declining 200 bps, as shipments fell 12% and revenue per shipment declined 6%.
Cyberattack presents another hurdle
To further complicate matters, Forward’s management team has been responding to a mid-December ransomware attack, which resulted in service delays for many customers. The company said the event “may result in a deferral or loss of revenue as well as incremental costs that may adversely impact the company’s financial results,” according to the filing.
In the weeks since, operations have returned to normal.
Shares of FWRD are up more than 20% since the investment group started accumulating shares, which it deemed “were undervalued and represented an attractive investment opportunity.”