Arkansas Best Rolling on Despite Slowing Economy

FORT SMITH — Arkansas Best Corp. smelled the roses in 1999 long before Wall Street. It did everything short of taking out a billboard telling investors: ‘Get To Know Us!’

David Humphrey, director of investor relations at Arkansas Best, was trying to get the word out that the Fort Smith company was doing quite well despite hard times in the trucking industry. Finally, it all sank in.

Two years after the 1995 purchase of WorldWay Group, Arkansas Best had reduced its debt from $450 million to about $200 million. Today that figure is down to about $150 million.

As a result, the company’s stock has also climbed from $4-5 in late 1998 to as high as $28 per share on Aug. 1. Arkansas Best, the holding company for ABF Freight System Inc., had slipped slightly to $22.55 at the close of market Sept. 10, the day before terrorist attacks on the United States halted trading on Wall Street.

But the stock has surged from $14.20 on April 3, and the road ahead looks promising.

“When we went and acquired WorldWay Group, we reported slight losses for two years,” said David Stubblefield, president of ABF.

“Obviously, that brought on negative connotations. But David [Humphrey] started getting our story out. Finally, Merrill Lynch picked us up with a buy recommendation. Some of their customers had never heard about us.”

Dan Moore, a trucking analyst with the securities firm Stephens Inc. of Little Rock, said Arkansas Best made an impressive climb out of a hole that in 1995 included only $45 million in equity.

“Arkansas Best made that acquisition in the middle of what was popularly known as the ‘tequila crisis,’ devaluation de pesos,” Moore said. “The trucking recession in 1995 couldn’t have come at a worse time. Arkansas Best took a little longer I think to get through the integration of [WorldWay]. They had an uphill climb from 1995 through ’97.

“But its management is clearly a very impressive group of individuals. Its operating performance is a testament to the experience they have. I see no reason why Arkansas Best shouldn’t continue to see twice the margins of its peers.”

Robert Young Jr., president and CEO of Arkansas Best, said his company outperformed the competition for about four years before finally getting recognized.

“Our profit margin has doubled and tripled the competition,” Young said. “But to our dismay, the stock market did not pick up on that right away.”

Now that Arkansas Best’s debt has been paid down to where Young says, “it’s no longer an issue,” the firm’s biggest problem has been the nation’s sluggish economy. But even that has a silver lining.

“The trucking industry is the first to go down when the economy is soft, but it’s the first to come out, too,” Stubblefield said.

ABF has been anything but soft. It ranked No. 772 on last year’s Fortune 1000 list with $1.38 billion in operating revenue. It also made Forbes magazine’s list of “The 400 Best Companies in America.”

ABF accounts for nearly 90 percent of Arkansas Best’s revenues, which total about $1.5 billion. Two other divisions of Arkansas Best accounted for $156 million: Clipper ($138 million) and FleetNet ($18 million).

Good Deal with Goodyear

Arkansas Best sold all but 20 percent of subsidiary Treadco Inc. in October 2000 to Wingfoot Commercial Tire Systems LLC of Fort Smith, a subsidiary of Goodyear. Treadco was in the business of retreading truck tires, competing against ABF supplier Michelin.

“That’s not a comfortable position,” Young said.

In April 2003, if Arkansas Best chooses, it can sell its part of Treadco to Goodyear for $74 million. Otherwise, Goodyear can use its option to purchase that 20 percent for $79 million.

“Either way we win,” Young said.

Arkansas Best sold G.I. Trucking to Estes Express Lines in August. G.I. was a subsidiary of WorldWay. As a regional, long-haul carrier in the west, Young said it too “didn’t make good sense” to keep G.I. since it was competing against ABF.

ABF’s Mexican partner is Multi-Pack, a company known as the UPS of Mexico. And while Young said he likes his relationship with Multi-Pack, he would be “in favor” of opening up the border.

“We operate in Canada and would like the option to operate ourselves in Mexico,” Young said. “In the long run, I think everyone would be better off by opening up the border. That is a tide that would lift all boats and help both economies.”

Best in 50 States

Arkansas Best has more than 80,000 customers on which it keeps records, but no customer makes up more than 3 percent of the company’s business.

ABF has 309 terminals, including nine distribution centers — Little Rock; Carlisle, Pa.; Albuquerque, N.M.; Salt Lake City; Chicago; Dallas; Atlanta; Dayton, Ohio; and Winston Salem, N.C. It is in all 50 states, Canada and Puerto Rico and has sales offices in Mexico.

Its fleet includes 1,683 road tractors, 2,786 city tractors and 20,407 road and city trailers.

ABF has never hired an officer from outside its company. In fact, Arkansas Best corporate officers average about 31 years with the company, while officers in the field have an average tenure of about 27 years.

“They know the business well,” Humphrey said.

Stubblefield was hired by Robert Young Sr. in 1959.

“Mr. Young gave you complete authority,” Stubblefield said. “And when Robert turned ABF over to me, he never second-guessed me. I guess if I screwed things up, he may have more things to say.”

Land of Orange Barrels

Arkansas’ two largest Interstates — 40 and 30 — have been rated among the worst roads in the country by several publications.

Overdrive magazine voted I-40 from the Oklahoma state line to the Mississippi River Bridge as the worst road segment in the nation three years running.

Virginia truck driver Irvin Halter told Overdrive that I-40 “was rutted so deeply it would jerk the steering wheel, throwing the truck into the other lane.” He said he had to tighten his seat belt to keep his head from hitting the roof of his cab.

A $350 million resurfacing project is under way for the stretch from Little Rock to Van Buren, something Young feels is long overdue.

“The Arkansas Highway Commission did not spend any money to speak of over the last 20 years,” Young said.

“They did repairs, but they didn’t rehab it. Highways are built to last about 25 years. The taxes we were paying were to go to these two highways, but [the money] wasn’t actually going back into it. They were out building roads around homes of the commissioners from best we could tell.

“With good maintenance, [I-40] should last about 25 years when it’s done in about three years. And it will be totally paid for by the diesel tax, so truckers are paying for it. In the meantime, we know where they’re storing the orange barrels all over the United States — on I-40 between Memphis and here.”

E-excellence

Earlier this year, ABF was named Network World’s “E-comm Innovator of the Year,” an award given annually to companies with extraordinary business-to-business e-commerce initiatives, using advanced technology while supporting business objectives.

The company’s e-commerce infrastructure — eCenter — has more than 23,000 registered users from more than 17,000 ABF customers.

These customers generate more than 70 percent of ABF’s annual revenue and shipment volume. ABF’s Web site is www.abf.com.