Morgan Keegan downgrades USA Truck

Cliff Beckham is nonplussed by a recent note from Morgan Keegan downgrading the shares of Van Buren-based USA Truck.

Beckham, the CEO of USA Truck, says company officials “will have access to the cash necessary” to return the company to profitability in 2012.

The trucking company on Feb. 6 posted a 2011 net income loss of $10.777 million, more than triple the loss during 2010 and in a year when other trucking companies are beginning to see improved financials. 2011 marks the third consecutive year of a losses for USA Truck. In 2010, the company reported a loss of $3.308 million, and a $7.177 million loss in 2009.

Total revenue during 2011 was $519.408 million, up 12.87% compared to 2010. Revenue during the fourth quarter was $126.202 million, just ahead of $122.090 million during the 2010 period.

Morgan Keegan analysts Chaz Jones and Nicholas Bender wrote in a Feb. 7 research note that they downgraded USA Truck shares (NASDAQ: USAK) to “Market Perform” because the earnings report was disappointing and indicated a longer path to profitability. They estimate that USA Truck could post a $3.5 million loss in 2012.

“Should the company struggle to improve performance in the near-term, we think results could deteriorate enough to potentially breach the company’s debt covenants, triggering another series of events that would handcuff management’s ability to reach profitability for some time,” noted the Morgan Keegan report. “The company indicated in its press release that they are taking proactive measures with creditors to stave off such an event, but it will continue to be a very real concern until such time as the issue is resolved.”

Jones and Bender said the most problematic part of the recent USA Truck report is the company’s inability to improve pricing while it worked to land new accounts.

“As more underperforming accounts are culled, one would expect pricing to improve — even if there was the simultaneous decline in utilization. However, neither pricing nor utilization showed improvement in the quarter, and as a result the efficacy of these measures will be called into question,” noted the Morgan Keegan report.

Beckham says the debt covenant issue is serious but the company has a “proactive” action plan.

“We indicated in our earnings release that we were closely watching those ratios, and are considering a proactive amendment to our revolver to ensure uninterrupted access to it,” Beckham noted.

Beckham also said the USA Truck benefits from a “healthy” cash flow from operations.

“We reinvest all of that cash back into the business to keep our trucks and trailers new so we can service our customers at an affordable cost and maintain a level of comfort for our drivers. We have not, and have no plans to, divert any of that cash to day-to-day operations. There is no short-term or intermediate term risk in running out of cash,” Beckham explained. “As mentioned in our earnings release, our operations have stabilized and now we simply need to add freight this spring (when customer bids from the winter are awarded).”