ABF Enjoys Improved Performance Under McReynolds

EDITOR’S NOTE: The following profile is part of a series originally published by Arkansas Business highlighting the chief executive officers of the 17 publicly traded companies headquartered in the state. The Northwest Arkansas Business Journal is running the profiles of the CEOs whose companies are headquartered in our coverage area as a service to our readers.

After two years in charge of Arkansas Best Corp., Judy R. McReynolds sounds relieved and what can only be described as cautiously optimistic that the losses and cutbacks of the past few years are behind the Fort Smith transportation company.

McReynolds, 50, assumed the role of CEO on Jan. 1, 2010, succeeding Robert A. Davidson. Arkansas Best is the parent company of ABF Freight System Inc., the seventh-largest trucking company in the state. McReynolds, who joined Arkansas Best in 1997 as director of corporate accounting, came to the lead spot after having served as senior vice president, CFO and treasurer.

Her stated goal as chief executive was simple: Make Arkansas Best profitable again. She has done that.

On Jan. 27, the company — after 10 quarterly losses — reported a return to profitability for full-year 2011 with net income of $6.2 million. Arkansas Best reported a net loss of $127.9 million in 2009, which it narrowed to a loss of $32.7 million in 2010.

McReynolds attributed the turnaround to a number of factors.

“During 2009, that was really the worst year in terms of the recession,” she told Arkansas Business. “We consider that year to be the worst recession since the Great Depression. And its impact on our business was very dramatic. Part of the improvement that we experienced in 2010 and 2011 was just coming off of that bottom and the economy improving.

“2011 more specifically had two stories. The first part of the year you could see the economy impacting our business in a way that greatly improved our tonnage, which is what we measure our volume by. And then the second half of the year, because of the improvement in the economy, we were able to improve our prices to a more appropriate level, and that really improves your profitability.”

McReynolds summed up: “It’s really a combination of the improving economy and then that bringing about our ability to improve our price.”

While the company’s first-quarter net loss broke a string of profits in the previous three quarters, Arkansas Best said in a news release that an unusually low corporate tax benefit rate and significantly higher workers’ compensation claims costs affected first-quarter results.

The company reported a net loss of $18.16 million, or 71 cents per share, for the quarter that ended March 31, compared to a net loss of $12.81 million, or 51 cents per share, in the same period a year earlier.

McReynolds said in the release that although the results didn’t meet expectations, the company is positioning itself for longer-term success.

“The pricing measures we have taken have improved the incremental profitability of ABF’s account base for future periods,” she said. “Our deliberate actions of adding personnel and developing enhanced information technology systems, all designed to advance a high level of service and facilitate future growth, are essential investments for our company.”

As the company’s performance has improved over the last two years, so has McReynolds’ compensation. In its proxy statement, filed Feb. 29, Arkansas Best reported McReynolds had total compensation of almost $1.35 million in 2011, which was a 35 percent increase over her total compensation of $997,769 in 2010. In 2009, before she became chief executive officer, the company reported McReynolds’ total compensation as $573,543.

McReynolds holds 29,629 shares of Arkansas Best stock, according to the most recent proxy. At the $18.96 closing price as of March 16, that’s a value of $561,765.84.

Arkansas Best, in addition to benefiting from an improved economy, has also seen its non-asset-based businesses expand under McReynolds’ leadership. These include FreightValue, a third-party transportation brokerage; FleetNet America Inc., which provides roadside assistance and equipment services to commercial vehicles; and Albert Cos. Inc., which offers moving, warehousing and delivery services for the consumer, corporate and military household goods-moving markets.

These non-asset-based businesses accounted for $204 million in revenue for Arkansas Best in 2011.

“Although a small portion of Arkansas Best Corporation’s revenues, on a combined basis in 2011, these businesses grew approximately 30 percent in both revenues and profits compared to 2010,” McReynolds noted in the annual report.

More recently, the company closed June 20 on its purchase of logistics firm Panther Expedited Services Inc. for about $180 million from private equity company Fenway Partners LLC.

In September 2011, ABF Freight announced the opening of offices in Indonesia, Japan, Singapore, South Korea, Malaysia, Vietnam, Thailand, Cambodia, Myanmar, the Philippines, India and Sri Lanka. The locations are in addition to ABF offices in China, Hong Kong and Taiwan, ABF said in a news release.

McReynolds told Arkansas Business that this move was in response to customers’ needs in emerging markets.

“What we’re trying to do is capture that business in the Asian market,” she said. Although ABF Freight doesn’t have assets, meaning trucks, in those markets, it works with transportation partners to provide shipping services.

This unit of the company, Global Supply Chain Services Inc., gives “our customers a great level of visibility about their goods, when they’re being completed in the manufacturing process, where they are in the shipping process as they’re crossing the ocean and then also here in the domestic U.S.,” McReynolds said. “As you can imagine there’s just a great opportunity with shippers to do that and a connection to our historical asset base, less-than-truckload business here in the U.S.”

Asked about the effect of rising fuel prices on Arkansas Best, McReynolds said she feared they could threaten the United States’ nascent economic recovery and that would, in turn, threaten the company she leads.

“I think everyone can agree that that’s money that is going to be spent on fuel by the consumer or by shippers that isn’t going to be spent on something else that perhaps would drive the economy more.”

Finally, asked what she knows now that she didn’t know when she became CEO, McReynolds said that her service as a director of other companies, specifically OGE Energy Corp. of Oklahoma City and First National Bank of Fort Smith, had taught her that Arkansas Best wasn’t alone in facing challenges. These challenges come in many forms — McReynolds cited health care cost increases and environmental regulatory challenges — but all companies face them.

“For some reason, there’s some comfort in knowing that.”

Serenah McKay of the Northwest Arkansas Business Journal contributed to this report.