Arkansas Best officials not focused on YRC troubles

While the bankruptcy of national trucking giant YRC would boost the fortunes of Fort Smith-based Arkansas Best Corp., officials with the Fort Smith trucking company aren’t pinning their hopes on a YRC stumble.

Overland Park, Kan.-based YRC in the past few days avoided bankruptcy through a complex bond swap agreement with creditors. The deal essentially reduced the company’s debt by about $500 million and provided short-term support for working capital.

The less-than-truckload company had piled up a mountain of debt with the $1.07 billion acquisition of Roadway Corp. in 2003 and the $1.23 billion acquisition of USF Corp. in 2005. The timing of the debt was terrible. A national freight recession began in October 2006 and continues today. As a result, YRC has posted $1.7 billion in losses in the past five quarters. For some perspective on the size of YRC and its troubles, Arkansas Best, the parent company of ABF Freight System, has lost $50.17 million in the past four quarters.

Banking giant Goldman Sachs came to the YRC’s rescue by helping sell a bond swap plan that just barely allowed the company to avoid bankruptcy.

According to this BusinessWeek article, Teamsters President James Hoffa actively urged the banking community and government officials to save the company. The Teamsters represent about 30,000 of YRC’s 59,000 employees.

However, several financial analysts who watch the trucking sector aren’t sure the recent action will ultimately save YRC from bankruptcy.

David Ross, with Stifel Nicolaus, noted in a recent report that “we believe the company may still burn through all of its cash and borrowing capacity in the next two months, as customers are getting increasingly nervous about having their freight stranded in YRC’s network.”

Credit Suisse analyst Chris Ceraso was a little more optimistic, saying YRC will now have to win back customers who left for smaller but more financially stable companies and hope the economy recovers enough to ensure the bond swap was worth the effort.

David Humphrey, vice president-investor relations and corporate communications for Arkansas Best, said YRC has proven “amazingly resilient” and “defied the pundits numerous times.” He said company officials aren’t making any big picture plans based on what might happen to YRC.

“We obviously keep an eye on it … because it would change the dynamics of the industry quite a bit,” Humphrey said, adding that ABF has picked up market share in the past few quarters and knows that some of that comes from former YRC customers. “You’re always aware of that (market opportunities). You’re always trying to get your foot in the door with someone else’s account.”

But Humphrey maintains that ABF sticks close to its policy of selling “the value of our product, our service” and gaining customers “without giving away the store.” Any gain in market share, Humphrey observed, is useless if it doesn’t help the bottom line.

“You don’t go bash the other guy. You go get the business based on the good product you have,” he explained.

Arkansas Best is scheduled to report its fourth quarter and full year 2009 earnings Jan. 28. The report will be the first issued under the leadership of new President and CEO Judy McReynolds. McReynolds assumed the top job Jan. 1 following the surprising early retirement of Robert Davidson who moved to the top job in February 2006.

McReynolds is not likely to preside over a near-term improved financial picture. Analysts estimate the company will post a 29 cent per share loss for the fourth quarter, and a $1.86 per share loss for the year. The company had a $1.15 per share gain in fiscal year 2008.