Lawsuit-induced relief uncertain for Arkansas Best (Updated)

The markets and at least one analyst are not convinced a lawsuit against the Teamsters will provide near- or long-term relief for Fort Smith-based Arkansas Best Corp.

Updated info: However, the market analyst says there are "legal instances" that could be viewed as precedents in favor of Arkansas Best Corp.

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, the largest subsidiary of Arkansas Best and a less-than-truckload carrier that competes with YRC, has been unable to obtain similar concessions from the Teamsters.

“It is ABF’s firm belief that the three rounds of concessions granted to YRC – with the latest deal just ratified last week – by the IBT are in violation of the NMFA that has been in effect since April 2008,” Wesley Kemp, president and CEO of ABF Freight System, said in a statement.

Monday trading of Arkansas Best shares (NASDAQ: ABFS) was at about twice the average volume. The share price increased 2.9% from a $25.51 open to a close of $26.27. During the past 52 weeks, the share price has ranged from a $33.54 high to an $18.84 low.

Jack Waldo, a transportation sector analyst with Little Rock-based Stephens Inc., issued a note to investors Monday saying the move by Arkansas Best does not change the target price ($25) on ABFS because of the “uncertainty surrounding the time and eventual outcome of the lawsuit.”

However, based on positive trends in the less-than-truckload industry, Waldo boosted his 2010 earnings per share prediction from a loss of $1.44 per share to $1.26 per share loss. He sees the company back in positive earnings territory in 2011 with a 95 cent per share forecast.

Waldo’s investor note included the following comments:
• We have made no adjustments to our estimate as a result of the recent announcement, although we would point out that concessions similar to those granted to YRCW could add +$3.00 in annual EPS to ABFS.

• Unfortunately for ABFS, being a solidly run company with a conservative balance sheet has worked against them over the years in terms of getting similar concessions to those YRCW has received.

• We think the suit does have merit, at least as we understand it, but think the timing and potential outcome is largely out of ABFS’s control. Specifically, we see the concessions granted to YRCW to significantly alter the playing field for other unionized carriers, and think ABFS’s actions serve as a last resort to bring this injustice to light on behalf of the Company and its union brethren.