Who pays a special dividend in a credit crisis?

Werner Enterprises may be stupider than their, stereotypical, over-the-road drivers. Time will tell, but Werner's latest decision is a blue beauty.

One December 5th the company paid a $2.10 per share special dividend, or about $150M. They had slightly less than that amount on hand in cash. The dividend effectively wiped out their cash and required borrowing under the company's line of credit.

In face of the effects of the recession, less freight hauled and increased competition, most companies would find some solace in having $150M of cash and an unused credit line. But not Werner. Evidently the Werner family had better uses for the cash than the company. It hasn't helped anyone's net worth as the share price has dropped more than the amount of the special dividend since it was announced.

Now that the cushion is gone, Werner has to accumulate cash as quickly as possible. Earnings alone won't fill the till fast as they only make about $75M per year so capital expenditures and SG&A are going to need a trimming. Werner's operating margins aren't as stellar as some of their competitors so they probably have fat available to cut, however, they should have cut the fat and forgot the special dividend.

While cash and short term loans don't carry high rates of interest, WERN will miss the interest income and now be adding more interest expense. That's on top of a noticeably slowing level of freight and some pricing pressure as competitors attempt to keep trailers, tractors, and drivers utilized. The company, due to the special dividend, has set itself up for a disappointing quarter or two. It also limited its ability to be among the largest consolidators as weaker competitors fail over the next six months.

The special dividend was so stupid, in my mind, that I've sold a few shares short. Werner isn't going to fail or drop to the low single digits, but the recessions impact over the next 6 months will impact earnings and impact its share price downward before the benefits of a consolidating industry improve matters.