Earnings from continuing operations in the 2006 third quarter included a gain of $6.2 million (eight cents per diluted share) from the sale of Con-way Expedite, and reflected a change in reporting of earnings from Vector SCM, LLC, the logistics joint venture with General Motors Corp. GM has exercised its right to buy Con-way's membership interest in Vector. From June 30, 2006, only profits associated with the settlement of pre-existing business cases will be reported in quarterly results. Any other profits from that date forward will be utilized in the valuation of Con-way's membership interest in Vector.
Operating income in the 2006 third quarter was $102.3 million, a decrease of 1.4% from $103.8 million earned in the third quarter a year ago. Revenues of $1.08 billion were essentially flat compared with last year's third-quarter revenues.
Net income available to common shareholders in the 2006 third quarter was $63.0 million, or $1.24 per diluted share. This compares to previous-year third-quarter net income of $66.0 million, or $1.18 per diluted share. The 2005 third-quarter net income to common shareholders included the results of discontinued operations and disposals, which were a net gain of five cents per diluted share.
As of January 1, 2006 the company adopted SFAS 123R, using the modified prospective method for calculating expense on stock-based compensation. Adoption of SFAS 123R reduced net income in the third quarter by two cents per diluted share and operating income by $1.6 million in the quarter. Under this method, prior-period results are not restated.
Reviewing the quarter, Douglas W. Stotlar, Con-way's president and CEO, commented that, as noted previously, LTL volumes were restrained mostly due to company-specific yield initiatives. At the same time, the company did not see tonnage growth typical of the traditional seasonal surge in the business cycle, which has not been as intense or as early as the previous two years.
'We pushed the lever on yield at a time when the market began to slow, and we paid for that in lower tonnage,' Stotlar said. 'Managing volume and yield is a shifting dynamic that we work to balance constantly. The key is to find the value point that is compelling for the customer and compensatory for our service. We are working with our customers to achieve this mutual objective.'
Stotlar added that the company has a number of targeted sales initiatives under way, which it expects will reinvigorate growth as they are implemented through the remainder of 2006 and into 2007.
'We continue to receive feedback from customers that our service is market-leading,' Stotlar said. 'Productivity and on-time performance in the LTL operations is the best in five years, measured against the toughest standards we've ever had.'
'We're confident that our value proposition ' in both freight transportation and logistics -- remains one of the strongest in the industry, and is an excellent foundation that will deliver sustainable, profitable growth,' he concluded.
The effective tax rate for the 2006 third quarter was 34.2% compared to 35.2% in the same period of 2005. The 2006 tax rate was affected by tax benefits of $2.9 million (six cents per diluted share) associated with the utilization of a capital loss carryover that offset the gain from the sale of Con-way Expedite, while the 2005 tax rate was affected by certain tax benefits and credits.
The company continued to make stock repurchases under its $400 million buyback program, authorized by Con-way's
