Heartland Express, Inc. History

Address:

2777 Heartland Drive
Coralville, Iowa 52241
U.S.A.

Telephone: (319) 645-2728
Fax: (319)645-2338

Public Company
Incorporated: 1978
Employees: 2,000
Sales: $191.5 million (1995)
Stock Exchanges: NASDAQ
SICs: 4213 Trucking, Except Local; 6719 Holding Companies, Not Elsewhere Classified

Company History:

Heartland Express, Inc. is one of the leading trucking companies serving the short-to-medium haul truckload market in the United States. Based outside of Iowa City, Iowa, Heartland's operations are primarily concentrated within the region east of the Rockies and west of the New York/Pennsylvania border. The company focuses especially on the Midwest and Southeast regions; the company also offers limited but expanding service to the West and East Coast regions, however, and serves all 48 states in the continental United States. Heartland trucks generally travel the north-south traffic lanes, avoiding the more intense competition along the east-west traffic lanes, which are dominated on the one hand by the country's major trucking lines and on the other by the railroads.

The average haul of a Heartland Express truck covered 625 miles in 1995. The company owns about half of its fleet of more than 2,000 tractors; historically, the company has contracted with owner-operators to fill out its fleet of tractors. The company also owns a fleet of trailers, generally on a two-to-one trailer-to-tractor ratio, allowing Heartland to station many of its trailers at the facilities of its major customers. Heartland owns and operates one of the youngest fleets in its industry. The average age of its tractors is 17 months, and the average age of its trailers is 30 months. All of Heartland's trailers are of the 53-foot, aluminum plate type.

In addition to its headquarters facility in Coralville, Iowa, the company operates regional distribution facilities in Iowa City; Columbus, Ohio; St. Louis, Missouri; and Atlanta, Georgia. Service from these regional centers focuses on 400-mile short haul freight runs for its major customers in each region. The company's major customers include Sears Logistics Services, which accounted for nearly 15 percent of Heartland's revenues in 1995, and the Kellogg Company, which accounted for nearly 11 percent of Heartland's revenues in 1995. Other major customers include General Mills and Whirlpool Corp. Overall, the company's top five customers accounted for nearly half of its 1995 revenues. In addition, 75 percent of Heartland's 1995 revenues came from just 25 customers. With the exception of Sears Logistics Services and Kellogg, none of the company's customers account for more than ten percent of the company's sales.

Heartland's long-standing reputation for quality service and dependability allows it to charge premium prices in the highly competitive trucking industry. The company operates no scheduled runs, enabling it to provide its customers with the flexibility to ship as suits their needs. Heartland also boasts high employee retention rates in an industry beset with high driver turnover. The company encourages driver loyalty by maintaining short-distance runs and regularly scheduling drivers to return home; Heartland drivers tend to return home weekly, compared with industrywide returns of up to six weeks. Heartland drivers, almost all of whom are nonunion, are also compensated for "deadhead" or empty miles. In addition, the company provides college scholarships to the children of all of its employees based on their length of service with the company. After five years, employee children receive half the cost of college education, based on the annual tuition at the University of Iowa; after ten years, employee children receive full tuition scholarships.

New Beginning in 1978

The origins of Heartland Express can be traced to 1955, when it was started out as a hauler for the recently launched Whirlpool line of washing machines. The company remained small for the next two decades, growing to a fleet of 16 trucks by the late 1970s. It was only in 1978, when Russell A. Gerdin bought the company, that Heartland's evolution into a leading trucking company began. By then, Gerdin, whose father had owned a small trucking company, already had more than a dozen years of experience in the trucking industry.

Gerdin graduated from Moorhead State University in Minnesota in 1965 and went to work for his father's company. Gerdin and his father, however, could not agree on the best way to run the family's business. Their conflict centered especially on the best way to increase the company's fleet of trucks. As Gerdin told Investor's Business Daily, "I watched Dad work on those trucks and pay interest all his life. As soon as he got a dollar, he would buy a new one and take on more interest. I said: 'I'll buy one truck and, when I get that paid off, I'll buy another one'--exactly different from Dad."

Gerdin and his father were unable to resolve their different visions for the company. After only six months, Gerdin left his father's business to go into business for himself. He bought his own trucking line, Great Plains Transportation, a small company based in Nebraska, in 1966. Over the next decade, Gerdin would own or partly own five more trucking companies, all of which were based in the Midwest. At the time, however, federal regulations severely restricted the routes available to trucking companies. Because most routes were already controlled by larger, established trucking companies, newer and smaller trucking companies found it difficult, if not impossible, to achieve any real internal expansion. Union control over the trucking industry was also a factor in limiting companies' growth.

Toward the end of the 1970s, Gerdin moved to Iowa and, together with several others, bought the assets of the predecessor company to Heartland Express, incorporating the company under that name in 1978. Gerdin was named chairman, chief executive officer, president, and secretary of the company. Heartland, too, might have remained a small, regional company. But, in 1979, the trucking industry was deregulated, opening new opportunities for the smaller companies in the industry. And few companies were able to take advantage of the changes in the industry as well as Heartland.

Gerdin set to work building the company's fleet, following his own ideas and adding one truck at a time. Another company policy set early in Heartland's history was that of maintaining a relatively young fleet, thereby limiting costly maintenance, while improving the company's dependability for its customers. As one company official later told the Des Moines Register, "We have a three-year cycle with our tractors--350,000 miles and they are out of here. We want to run trucks. We don't want to repair them. We want to change the oil and do small repairs. We are not doing real major repairs. We want to keep quality pieces of equipment on the road ... that we feel are more dependable." The relative youth of its fleet also allowed Heartland to maintain a low service employee to tractor ratio of one employee for every seven tractors, compared with the industry average of one to 3.5.

Heartland quickly established a reputation for reliable service among the industry. While keeping early major customers like Whirlpool and Amana, Heartland added others, including Sears and Kellogg, that would also maintain long-term relationships with the company. By 1982, the company was bringing in nearly $11 million in annual sales, and, by keeping its costs low, the company managed to achieve net income of more than $1 million.

Going Public in the 1980s

The company continued to grow slowly but steadily through the first half of the 1980s, despite the nationwide recession of the period. In fact, the new realities of doing business during this time actually helped Heartland grow. More and more manufacturers began to automate production and turn to "just in time" inventory systems, supplying production lines with materials and parts only at the time they were actually needed, which enabled manufacturers to decrease their reliance on costly warehousing. In turn, the manufacturers became more reliant on short-haul shippers to meet their inventory needs. With reliability now more than ever a critical factor in a manufacturer's shipping needs, Heartland's reputation for dependability helped the company secure its growing position in the trucking industry. Yet another factor in Heartland's success was its high trailer to tractor ratio. By maintaining on average twice as many trailers to its tractors, Heartland was able to station some of its trailers at its customers' plants. This had two benefits. Trailers could be loaded and unloaded by the manufacturers, cutting down on time between shipments. Meanwhile, Heartland's tractors were free to haul other loads.

By 1986, Heartland had doubled its revenues, to nearly $22 million. The company's string of profits also continued, reaching $3 million in that year. By November 1986, Heartland was prepared to step up its expansion. Gerdin took the company public, selling 1.5 million shares at $10 per share. Most of the shares sold were Gerdin's, reducing his control of the company to about 65 percent. Portions of the proceeds from its initial public offering (IPO) went to expanding the company's fleet. By 1987, after posting profits of $3.5 million on revenues of $26 million, the company's fleet had reached 126 company-owned tractors and 125 owner-operator tractors. After purchasing 59 drop deck dry vans from a Missouri-based trucking company, Heartland's fleet included more than 600 trailers, more than half of which were less than a year old. The new acquisition led Heartland to expand its operations as well, as the company added a service center in LaMonte, Missouri to support the new additions to its fleet.

In 1988, with a tractor fleet numbering more than 300, almost half of which were company owned, and the number of trailers at 715, Heartland posted a net income of more than $5 million on $34.6 million in sales. The following year, Heartland stepped up its expansion, purchasing the assets (including 120 dry van trailers) from PDQ Transportation Inc., a Tennessee-based trucking line. This move enabled Heartland to extend its trucking services beyond the Midwest region into the Southeast. Taking over PDQ's customers proved to be a challenge for the company, however. After a drop in earnings early in 1989, the company moved to shed the less profitable of its new customers. Late that year, Heartland opened a second regional service facility in Dyersburg, Tennessee and committed to expanding its service in the Southeast region.

Profiting from the Recession, the Early 1990s

By late 1989, the economy was in a downturn as the country entered the recession that stretched into the early 1990s. But under Gerdin's guidance, Heartland had consistently avoided taking on long-term debt; in fact, the company claimed that it still had not spent all of the money raised in its IPO. As Gerdin told Forbes, "In good times, maybe we don't look so smart. But now we do." Gerdin's conservative leadership paid off as Heartland moved to take up business from competitors struggling to survive in the poor economic climate. Gerdin made a new move in 1989 to solidify the company's standing when it began converting its entire fleet to new 53-foot trailers, the first in the industry to do so. The new trailers, longer than the typical 48-foot trailer found in the industry, provided the company, and its customers, with 11 percent more freight space, with little difference in operating costs. Heartland also moved to convert its company-owned tractor fleet to the more fuel-efficient cabover design.

The conversion of the company's nearly 1,500 trailers was completed in 1990. By that year, the company's fleet had grown to 525 tractors, including 235 new cabover tractors, an increase of nearly 100 over the previous year. Despite the conversion of the fleet, Heartland stayed true to Gerdin's original conviction and managed to remain debt free. "Not only do we have no debt, but we are dealing from a base of business decisions, rather than on whether we have enough cash flow," John Cosaert, Heartland's chief financial officer and co-founder told Investor's Daily. "A lot of people are putting themselves in a bad position because of leverage." By the end of 1990, the company's fleet had grown to nearly 300 company-owned tractors. Revenues grew to $63 million, providing a net income of more than $7.3 million.

Early in 1991, Gerdin reduced his control of the company, putting up 650,000 of his own shares in a secondary offering, leaving him with 51 percent of the company's stock. By the end of that year, Heartland doubled the size of its company-owned tractor fleet as it continued to expand, especially in the Southeast. To further expansion in that region, Heartland started up Heartland Distribution Services (HDS), a subsidiary concentrating on short-haul traffic, in 1992, and opened a distribution center in Atlanta, Georgia to service the new subsidiary. By the end of that year, HDS had already outgrown that facility, and the company bought a new, larger center in Atlanta. Also in 1992, Heartland combined its LaMonte, Missouri and Dyersburg, Tennessee centers into a new terminal located in St. Louis, Missouri designed to accommodate the company's short-haul growth in the region. Meanwhile, the company's trailer fleet underwent a new conversion, now to aluminum plate trailers. The new trailers were wider by more than three inches than conventional trailers, further increasing load capacity; the aluminum plate was also stronger, lowering maintenance costs, and the new trailers were expected to last ten years instead of the seven years that conventional trailers usually lasted.

Poised for the Future

By 1993, Heartland revenues had jumped to $115 million. The following year, however, Heartland moved to double the size of the company by acquiring Munson Transportation Inc., a struggling trucking company based in Monmouth, Illinois. Under the conditions of the acquisition, Munson received shares of Heartland stock, then worth $73 million, while Heartland assumed Munson's $55 million debt. In addition to acquiring Munson's aging fleet and facilities, Heartland gained access to Munson's Northeast and West Coast markets, expanding Heartland to a national trucking line. After attempting to merge Munson's operation into the company, Heartland finally consolidated both companies, closing Munson's Illinois facilities and moving its operations to Heartland's Coralville, Iowa headquarters. The company also sold off most of Munson's aging, diversified trailer fleet, returning the company to its uniform, 53-foot aluminum plate fleet of trailers.

A booming year for trucking in 1994 helped Heartland overcome the challenges of the Munson acquisition. By the end of 1995, in addition, Heartland had wiped out its entire debt. As a company posting nearly $200 million in sales, with a net income of more than $20.5 million, Heartland had taken its place as one of the top ten truckload carriers in the United States.

Principal Subsidiaries: Heartland Express Inc. of Iowa; Heartland Distribution Services; Heartland Equipment, Inc.; Heartland Monmouth Warehouse Corporation; Munson Transportation, Inc.; Munson Transport Services, Inc.; Munson Equipment, Inc.

Heartland Express, Inc. History

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