Arkansas Best posts income of $6.5 million (updated)

A weak economy and high labor and healthcare costs were some of the factors cited by Arkansas Best Corp. officials in reporting third quarter net income of $6.5 million, down from the $12.3 million in the same period of 2011 and below the consensus estimate.

The Fort Smith-based transportation holding company had total revenue of $577.546 million in the quarter, well ahead of the $510.887 million in the 2011 period. The gain came courtesy of $60.445 million operating revenue stream from Panther Expedited Services, the logistics company acquired by Arkansas Best Corp. during the second quarter.

Per share earnings of 24 cents missed the consensus analyst estimate of 26 cents.

The largest subsidiary of Arkansas Best is ABF Freight System, one of the largest less-than-truckload carriers in the U.S.

ECONOMIC ‘WEAKNESS’
“Arkansas Best’s results reflect weakness in the economy that contributed to reduced customer business levels and lower profitability at ABF. The slowing business environment also reduced the demand for expedited services at Panther,” Arkansas Best President and CEO Judy McReynolds said in the earnings statement. “However, at our emerging non-asset-based companies, we are encouraged by the continuation of strong revenue and improving profitability trends in the midst of a tenuous economy.”

For the first nine months of 2012, the company has emerged from the red with net income of $197,000, which is below the $4.929 million in the same period of 2011. Total revenue during the first nine months was $1.528 million, ahead of the $1.444 billion in the same period of 2011.

The American Trucking Associations’ Truck Tonnage Index has been relatively flat for the first nine months of 2012, and ended at 118.7 in September. The September index was equal to the January level, and was up only 2.4% compared to September 2011. The ATA said the increase was the smallest year-over-year gain in almost three years.

“The biggest risk to trucking would be a backslide into recession either because of the collapse of the Euro, or more likely, uncertainty related to the 'fiscal cliff' at the end of the year,” ATA Chief Economist Bob Costello said in a statement. “It is very likely that Washington simply punts on resolving the issues surrounding the cliff into 2013, thus limiting GDP growth to less than 2% until late in the year.”

UNION COSTS
The company said the effect of higher costs “were amplified by the decline in quarterly revenue.” Freight transportation operating revenue during the quarter was $455.99 million, down from $459.325 million during the third quarter of 2011.

The “most significant” costs were those related to the company’s labor union contract.

“As previously announced, we expect to begin negotiations with the Teamsters National Freight Industry Negotiating Committee, the negotiating arm of the International Brotherhood of Teamsters, on December 18,” McReynold’s noted in the statement. “ABF’s next labor agreement offers an opportunity for us to work together with the Teamsters and our employees to ensure that ABF is viable in the marketplace and able to grow jobs and effectively compete for additional, profitable business.”

Most of the 7,800 unionized employees with Arkansas Best – the company employs more than 10,000 – are drivers, but the union membership also includes dockworkers, mechanics and office staff.

Arkansas Best officials will negotiate with a Teamsters organization they have twice attempted to sue as part of a $750 million lawsuit.

Arkansas Best has alleged that wage deals between the Teamsters and YRC, a competitor of ABF Freight, violated a National Master Freight Agreement (NMFA). The NMFA, implemented April 1, 2008, was designed to create equal labor costs and other benefit payments among trucking companies with drivers represented by the Teamsters.

That lawsuit, first filed in November 2010, was recently dismissed a second time by U.S. District Court Judge Susan Webber Wright (Eastern District of Arkansas). Arkansas Best officials say they will again appeal the dismissal to the U.S. Eighth Circuit Court of Appeals (St. Louis).

‘BETTER PRICE LEVELS’
The company also said some of the decline in revenue is the result of price increases made in most of 2011 and through the first quarter of 2012. Historically, ABF has been known in the industry as a company that does not “chase freight” by lowering rates. Such pricing policies often leave a company with an upside down operating ratio. McReynolds appears to be continuing the company’s history with requiring adequate rate pricing.

“ABF’s recent yield improvement reflects positive retention of the late June general rate increase and better price levels on contractual agreements that renewed during the quarter. ABF has added new, profitable customer relationships and remains focused on improving existing account pricing and managing its resources to available freight levels,” McReynolds explained.

HURRICANE SANDY ISSUES
Looking ahead, Arkansas Best is likely to report on service disruptions, and associated revenue losses, related to Hurricane Sandy. Numerous “lane service interruptions” were still being reported by the company on Thursday, including the area of Paterson, N.J., and Brooklyn, N.Y.

The company’s ABF U-Pack operation saw terminal closures and service problems at numerous facilities, including as far inland as Knoxville, Tenn. As of Oct. 31, the only U-Pack terminal closed was in Carlstadt, N.J.

Shares of Arkansas Best (NASDAQ: ABFS) closed Wednesday at $8.05. The third quarter report was released Thursday morning (Nov. 1) prior to the market opening. During the past 52 weeks the share price has ranged from a $22.79 high to a $7.32 low.