Arkansas Best posts another quarterly income loss

Quarterly earnings for Arkansas Best Corp. continue to be in the red, but a market watcher expects the “positive earnings momentum” to continue for the financially beleaguered transportation holding company.

Fort Smith-based Arkansas Best reported Wednesday (Nov. 3) a third-quarter net income loss of $749,000, compared to a $5.573 million loss in the 2009 period. The loss of 3 cents per share was better than the 4 cents per share loss expected from the average estimates of analysts who cover the company.

For the first nine months of the year, the company has lost $29.585 million, a tough number to swallow but still better than the $39.173 million lost in the same period of 2009.

Total revenue in the third quarter was $445.531 million, up 11.6% over the 2009 quarter. For the first nine months of the year, total revenue is $1.216 billion, up 10.4% over the 2009 period.

Jack Waldo, a transportation industry analyst for Little Rock-based Stephens Inc., said the company is improving its financial situation but is several months away from escaping negative earnings territory.

“On a year-over-year basis, ABFS showed meaningful improvement across the board, with 11.7% revenue growth, $10.5 million improvement in EBIT (earnings before interest and taxes) and $0.19 improvement in EPS. We expect continued improvement in these areas going forward, but are not projecting ABFS to return to profitability until the June 2011 quarter,” Waldo said in an investor note issued prior to an Arkansas Best earnings report conference call.

The freight recession that began in fall 2006 has been financially tough on Arkansas Best and its largest subsidiary, ABF Freight System, a less-than-truckload carrier.

Arkansas Best, which employs about 9,500 nationwide, posted a 2009 net income loss of $127.52 million, compared to a $29.168 million gain in 2008. However, the 2009 income loss includes a non-cash accounting charge of $64 million for the impairment of goodwill. Total revenue in 2009 was $1.472 billion, a 19.6% dip from 2008 revenue of $1.833 billion.

The company noted that tonnage continues to improve and annual non-union cost savings are expected to be as much as $18 million.

“Continuing improvements in ABF’s year-over-year and sequential tonnage trends contributed to better operating results and a reduction in our third quarter loss versus last year and last quarter,” Judy R. McReynolds, Arkansas Best president and CEO, said in the earnings report. “Throughout the third quarter, the monthly rate of increase in ABF’s year-over-year tonnage improved.”

The report included the following comments from McReynolds:
• “As market conditions have improved, the commentary on LTL pricing is more positive.”

• “It is important to remember that industry pricing is at a historically low point and a return to consistent, adequate levels will take time. Recently, ABF implemented a general rate increase and others in our industry have also announced price increases. Though ABF’s rate increase only began a little over one month ago, so far we are pleased with its level of customer acceptance.”

• “Late-2009 changes made to various nonunion fringe benefit costs had a positive impact on third quarter 2010 results.  Arkansas Best continues to be on track to experience annual savings at the high end of the previously disclosed $15 – $18 million range. Again, I want to express my appreciation to our nonunion employees who have made the necessary financial sacrifices during these challenging times.”

The “nonunion employees” comment reflects a clear message of frustration company management has with the Teamsters union and the about 7,000 union members who are ABF drivers.

On Monday (Nov. 1), Arkansas Best filed a grievance and a lawsuit to seek up to $750 million in financial damages from alleged violations of a National Master Freight Agreement (NMFA) by the International Brotherhood of Teamsters and others. The lawsuit was filed in the U.S. District Court, Western District of Arkansas.

The NMFA, implemented April 1, 2008, was designed to cause equal labor costs and other benefit payments among trucking companies with drivers represented by the Teamsters. However, YRC Worldwide, the largest less-than-truckload carrier in the U.S., has received three rounds of wage and benefit concessions from the Teamsters, with the most recent announced Monday that includes up to $350 million annually through 2013.

ABF Freight System, which competes directly with YRC, has been unable to obtain similar concessions from the Teamsters.

Waldo reiterated in his Wednesday investor note that while the litigation “brings into play a potentially large catalyst,” the chance of that happening are too uncertain to factor into future financial considerations.

Shares of Arkansas Best (NASDAQ: ABFS) opened at $26 and were trading lower in mid-day activity. During the past 52 weeks, the share price has ranged from a $33.54 high to an $18.84 low.