Arkansas Best Ends Two-year Loss Skid

Fort Smith-based Arkansas Best Corp. has ended two consecutive years of losses with 2011 net income of $6.159 million. Gains in tonnage, cost cutting and price increases helped boost the bottom line.

The company, which operates less-than-truckload carrier ABF Freight System as it primary subsidiary, also on Friday (Jan. 27) posted fourth-quarter net income of $1.404 million, well ahead of the $3.117 million loss during the 2010 period. The quarterly gained marked three consecutive quarters of positive income for Arkansas Best.

Fourth-quarter per share earnings of 5 cents missed analysts estimates of 24 cents per share. The per share earnings for the quarter were hit with a 3 cents per share charge from a pension settlement associated with the Dec. 31 retirement of Wes Kemp, the former president and CEO of ABF Freight System.

“Arkansas Best’s profitable results for the fourth quarter and full year reflect an improving business environment as characterized by revenue growth in each of our operating segments. ABF’s full-year results represent an important step toward achieving our goal of returning to historical profitability levels,” Judy McReynolds, Arkansas Best president and CEO, said in the earnings statement. “Our employees are to be commended for their successful efforts to address customer needs in an ever-evolving marketplace.”

For the full year, revenue was $1.907 billion, up more than 15% compared to the $1.675 billion in 2010. The company’s full year revenue lagged the consensus estimate of $1.92 billion.

Net income for 2011 reached $6.159 million, a huge swing from the $32.693 million during 2010. The company posted a net income loss of $127.522 million loss in 2009, with $64 million representing an accounting charge for the impairment of goodwill. The company posted net income of $29.168 million in 2008.

TONNAGE SHIFTS
Four key metrics for the freight business of Arkansas Best show the improvements that pushed positive net income.
• Tonnage per day increase of 4% compared to 2010.

• Total billed revenue per hundredweight of $26.86, up 10% compared to $24.41 in 2010. The billing boost compared to tonnage reflects the ability of Arkansas Best to push price increases during 2011.

• Operating income — excluding pension settlement charges — reached $4.7 million compared to a 2010 operating loss of $59.6 million.

• The operating ratio, a closely watched figure in the trucking sector, was 99.7%, meaning the company was able to keep only about a third of a penny for each dollar of revenue. The 2010 operating ratio was 103.9%.

However, tonnage in the fourth quarter for ABF Freight was down 7.6% compared to the fourth quarter of 2010. The relatively big decline is significant because company officials were concerned that a per day third-quarter tonnage decline of 2% would continue into the fourth quarter.

Arkansas Best CEO McReynolds noted in the earnings report that trucking industry conditions remain uncertain.

“The transportation industry is facing a number of challenges that will likely reduce the amount of capacity available to serve the marketplace. Because of the stability of our workforce and the capabilities we offer, our companies are well positioned to serve our customers in 2012 and in future years,” she said.

December saw improved freight demand nationwide. The American Trucking Associations reported a 6.8% gain in their December trucking index — the largest month-to-month increase since January 2005.

“While I’m not surprised that tonnage increased in December, I am surprised at the magnitude of the gain,” ATA Chief Economist Bob Costello said in the ATA statement. “Not only did truck tonnage increase due to solid manufacturing output in December, but also from some likely inventory restocking. Inventories, especially at the retail level, are exceedingly lean, and I suspect that tonnage was higher than expected as the supply chain did some restocking during the month.”

Improvements in the trucking sector may have benefitted from a GDP gain. The U.S. Bureau of Economic Analysis reported Friday that real GDP — the output of goods and services produced by labor and property in the U.S. — increased 2.8% in the fourth quarter over the third quarter. Third quarter GDP was up 1.8%. (Friday’s GDP is the advance estimate, with subsequent GDP figures often revised downward.)

Key in the GDP report is the estimate of a 1.94% gain in private inventories during the fourth quarter, a much improved figure — if it stands — compared to a 1.35% inventory decline in the third quarter.

“Private businesses increased inventories $56.0 billion in the fourth quarter, following a decrease of $2.0 billion in the third quarter and an increase of $39.1 billion in the second,” the BEA noted in its report.

SEGMENT OPERATIONS
Emergency and preventative maintenance revenue hit $92.6 million during 2011, up from $74.9 million during 2010. Operating income in the sector was $3 million compared to $2.7 million during 2010.

The company’s logistics division generated revenue of $85.6 million during 2011, up from $63.7 million during 2010. Operating income in the sector was $2.7 million compared to $1.7 million during 2010.

The company’s truck brokerage division generated revenue of $25.4 million during 2011, up from $19.2 million during 2010. Operating income in the sector was $1.9 million compared to $1.4 million during 2010.

Shares of Arkansas Best (NASDAQ: ABFS) closed Thursday at $22.50, a gain of 61 cents from the previous close. aDuring the past 52 weeks, the share price has ranged from a $27.44 high to a $14.22 low.

Michael Tilley with our content partner, The City Wire, is the author of this report. He can be reached by email at [email protected].