Preston Corp., the trucking company based on Maryland's Eastern Shore, said yesterday it will close two of its trucking lines in a move that will put 1,000 people out of work.
Affected by the planned shutdown are Pioneer Transportation Systems Inc. of Hurlock, Md., and Reeves Transportation Co. of Calhoun, Ga.
Pioneer, a long-distance carrier of auto parts and consumer goods, employs 590 people. Reeves, a short-haul company that primarily transports carpets and floor coverings, will lose 410 people in the closings.
Another 400 Reeves employees will stay on the job in the company's West Coast and Texas divisions, which will remain in business.
The closings, which Preston said would lead to a $17 million charge against earnings, were greeted with applause on Wall Street, where some securities analysts had long recommended that Preston jettison the two companies.
Preston's stock closed at $5.75 on the over-the-counter market, up 25 cents a share.
Both Pioneer and Reeves had been losing money, but their troubles became financially unbearable in an economy marked by falling retail sales and rising fuel prices, according to company officials and trucking industry analysts.
Those same problems could cripple other trucking companies or make it difficult for the weakest ones to keep rolling, said Otto F. Grote, an analyst with Derby Securities in New York.
"There's no question that almost every aspect of the surface carrier business is slowing down across the board, primarily because of economic conditions," Grote said.
Skittish retailers are cutting orders, trying to hold down inventories in a market that appears to be going sour, he said. A slowdown in housing starts, coupled with consumers' growing tendency to postpone big-ticket purchases, is affecting the shipment of goods such as carpets and auto parts, Grote said.
The resulting decline in truck shipments, he said, along with rising fuel prices, has led to intense competition and lower profits in the trucking industry.
Falling revenue made it difficult for Pioneer to meet higher fuel bills, and Reeves also was hit by high insurance costs, said Eric Jensen, Reeves vice president of finance and administration.
Workmen's compensation and other claims forced the company to set up a $6 million insurance reserve pool, Jensen said.
"We're a $45 million company," he said. "We simply couldn't make a profit and carry that much insurance liability."
For their part, Preston officials said the decision to close the two subsidiaries came after many efforts to make them profitable again. "But neither company has been able to overcome the considerable problems affecting its particular market," said William B. Potter, Preston's president and chief executive officer.
Preston itself lost $215,240 in the first quarter of this year, compared with a profit of $1.1 million (19 cents a share) in the year-ago period. Last year, Preston lost $850,000, compared with 1988 earnings of $7.3 million ($1.27).
Closing Pioneer and Reeves will help Preston reverse some of those losses, said Jeffrey S. Medford, an analyst with Wheat, First Butcher & Singer in Richmond.
"I applaud the management for closing the two companies down," he said.
"This is something that it should have done a year ago."