There seems to be an ironic twist to the lawsuit J.B. Hunt Transport Services Inc. filed against 19 former employees now working for Cardinal Freight Carriers Inc.
Last week, J.B. Hunt sued Vin McLoughlin, the former president of its Dedicated Contract Services division; Tom Hostetler, the former general manager of DCS, and 17 other former executives who left J.B. Hunt to work for Cardinal Freight.
In the lawsuit, filed in Benton County Circuit Court, Hunt claims Cardinal Freight raided J.B. Hunt in July for the group of employees.
But J.B. Hunt apparently used somewhat similar tactics to hire some of the same people from Ryder Truck Systems Inc., sources familiar with the matter say. McLoughlin was an executive with Ryder before joining J.B. Hunt in 1993. Hostetler also had been a long-time employee with Ryder although he worked for several months with Laidlaw Trucking before joining J.B. Hunt.
An undetermined number of the employees who switched to Cardinal also worked with Ryder before joining J.B. Hunt. Some joined the Lowell-based firm within weeks after McLoughlin. Not all 19 people worked with Hunt’s DCS division.
One source says Ryder sued J.B. Hunt over the matter, although the lawsuit was subsequently dropped.
Neither McLoughlin, now chairman of Cardinal Logistics Management Inc. of Concord, N.C., nor Hostetler, president of Cardinal Logistics, would comment specifically about the lawsuit. Cardinal’s attorney, Jeff Kirby of Atlanta, also declined to comment.
No one from J.B. Hunt would comment on the suit and neither would Hunt’s attorneys in the case, Ken Shemin and Woody Bassett of Fayetteville.
Charges ‘Totally Baseless’
Cardinal Logistics Management, parent company of Cardinal Freight, said in a prepared statement that it “believes the charges filed by Hunt are absolutely devoid of any merit and are totally baseless in content.”
“Cardinal Logistics and its managers deny that they have engaged in any wrongdoing,” the statement says. “It is our clear belief that these allegations will be quickly proven to be without merit.”
Hostetler did say, “We’ll continue to work through this process and we may have some more light to shed on events later, but at this point I think we’ll just stick with where we are.”
“J.B. Hunt is obviously a fine company and it’s got an excellent group of people,” Hostetler says. “Their dedicated services division, which was the one we were involved with, continues to provide the same level of service to its customers that it has in the past.”
McLoughlin says Hunt is still left with a great deal of talent. The division has about 200 management personnel in it and did $127 million in revenue last year. The management personnel are scattered all over the country.
Also included in the suit are Cardinal Freight Carriers; GTCR Inc., a Chicago-based venture capital company that owns Cardinal Logistics and Cardinal Freight; and Bentonville Associates Ventures, a firm that represented Cardinal in an attempt to pay Hunt $90 million for its DCS division’s entire book of business.
J.B. Hunt uses its own equipment, drivers and operations managers for about 110 customers who use the company’s dedicated contract services. Two major customers for J.B. Hunt are Target Stores and Mark III Industries Inc., an automotive services company.
Cardinal Freight was owned by Arkansas Best until July, when it was sold to Golder, Thoma, Cressey and Rauner Inc. for $38 million. A day before that sale was completed, McLaughlin and Hostetler resigned from J.B. Hunt, the suit says.
On July 16, a day after GTCR bought Cardinal Freight, Mike Seals of Bentonville Associates Ventures, himself a former president of Hunt’s DCS division, sent J.B. Hunt a letter on behalf of GTCR, offering to buy Hunt’s DCS division for $90 million. J.B. Hunt’s suit calls the offer a “blackmail attempt.”
J.B. Hunt also claims Cardinal Freight is attempting to steal away some of its customers.
“Our intent is to compete aggressively in the marketplace for new business,” McLoughlin says, “but we are not interfering with any of their contracts. We do feel that here in America competing in the marketplace is encouraged.”
“I wouldn’t be surprised if they felt that Ryder is trying to take some of their customers away,” Hostetler says. “So I guess I don’t understand the context of that [allegation].”
‘Explosive Growth’
It’s easy to see why J.B. Hunt would be so angered by Cardinal Freight hiring its employees and trying to buy the DCS division. DCS, along with the logistics division, has shown “explosive growth” recently, says Anthony Hatch, an analyst with NatWest Securities in New York, in a recent research report.
The DCS division is focusing on private fleet conversion. J.B. Hunt believes it could save Wal-Mart Stores Inc., which has a 3,500-tractor fleet, as much as $70 million a year in driver costs alone if it were to get a contract with Wal-Mart, Hatch says in the report.
“One of the issues here, and it may have helped these peoples’ decision to leave, is I think J.B. Hunt had too many ideas cooking at once,” Hatch says in a telephone interview. “They need to focus on a more select group of things, in my opinion. So it may end up being a positive for both the ones who left and for J.B. Hunt, to downsize in that area.”
The loss of the employees is just another in a series of difficulties for J.B. Hunt.
Several other analysts who follow J.B. Hunt either are neutral on the stock or recommend holding the stock. One analyst, Steve Lewins of Gruntal & Co. of New York, even has a sell recommendation for J.B. Hunt, an unusually candid position for an analyst. Many analysts use a “hold” recommendation as a synonym for “sell.”
In his research reports, Lewins says loaded miles were weak for J.B. Hunt in July. Its intermodal yields were down about 3 percent and the van business was down 1-2 percent.
“Heavily followed J.B. Hunt stock forever seems to get high marks from analysts early in the year,” Lewins writes. “Then the estimates crumble. For 1997, consensus [earnings projections] exceeded $1 per share as recently as [last] fall. That figure recently declined to 55 cents. We bet it is going lower.”
J.B. Hunt’s stock has traded in a narrow range between about $13 and $187.75 and is up about 25 percent this year. The stock prices of some other Arkansas trucking companies have performed impressively this year. Arkansas Best Corp.’s stock is up about 160 percent this year. P.A.M. Transportation Inc. is up about 115 percent and American Freightways Corp. is up about 45 percent.
Lewins doesn’t figure Hunt to report a positive quarterly comparison until the first quarter of next year.
“J.B. Hunt will have its day, but it may be a while yet before the sun rises,” Lewins says. “When it does, leverage may telescope profits. But for now, weak intermodal pricing, unimpressive loaded miles and too-few drivers appear to be taking a toll.”
David Guthrie, an analyst with Morgan Keegan & Co. in Memphis, is not quite so harsh on J.B. Hunt, but he isn’t excited enough to suggest that investors buy the stock.
Guthrie, neutral on J.B. Hunt’s stock, says the company is doing the right thing to sell off some divisions “that never did really click for them.” In the past two years, the company has sold a division that transported hazardous materials, the flatbed division, the parcel management service and equipment used in the automobile hauling service.
“I think they are doing the right thing and sort of retrenching and focusing on the areas where they are really good and are big enough to really matter for them,” Guthrie says.
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