A few notes on the trucking sector

Fort Smith-based Arkansas Best Corp. and Van Buren-based USA Truck are just two reasons why the health of the domestic trucking industry is important for the regional economy.

Trucking companies face three basic problems: a reduction in freight volumes, downward pressure on shipping rates and hurdles in accessing credit.

“In the short term, things are going to deteriorate extensively,” Bob Costello, chief economist for the American Trucking Associations, said in a recent interview. “The trucking environment will get worse before it gets better.”

Arkansas Best, the parent company of ABF Freight System, recently took a hit when Goldman Sachs analysts Chris Hussey and Joseph Ritchie placed a “Sell” rating on the shares of Arkansas Best (NASDAQ: ABFS). Hussey and Ritchie cite declining freight volume and competitive pressure from FedEx and UPS as reasons for the “Sell” rating. But the less-than-truckload company recently reported third-quarter earnings ($15.4 million) that beat expectations. Also, the company’s conservative management style has resulted in a company with very little debt and about $225 million in available cash.

USA Truck, a long-haul carrier, has seen a mild turnaround in its fortunes. The company recently reported net income of $2.54 million for the first nine months of 2008, a healthy increase over the $1.71 million in the same period of 2007.

The company, which is trying to diversify its revenue base by expanding into intermodal and other alternatives to pure trucking, has received kudos from some market watchers.

“We believe that the worst is behind (USA Truck) and that the carrier has begun to make some headway toward achieving its internal objectives,” wrote John Barnes, an analyst at BB&T Capital Markets, in a mid-July report.

There are a couple of things to watch with USA Truck. The company saw its cash and cash equivalents fall from $7.41 million as of Dec. 31, 2007, to $1.95 million by Sept. 30. Also, the company’s long-term debt grew from $70.2 million at the end of 2007, to $96.53 million by Sept. 30. The drop in cash and increase in debt are not critical, but could prove troublesome if the freight environment declines more than expected.