Arkansas Best, Teamsters Contract Delayed Again

A partial approval of contract terms that may push forward by several weeks ratification of a five-year labor agreement was likely not the report officials at Fort Smith-based Arkansas Best Corp. wanted to hear.

The contract, once ratified, will cover about 7,500 employees of ABF Freight System who are members of the union. Most of those workers are drivers. ABF is the largest subsidiary of Arkansas Best, a transportation holding company. The contract includes an immediate 7% wage reduction that is recovered by the fifth year of the contract. The company was also able to negotiate for flexibility in work schedules and work across job classifications. Most of those workers are drivers.

The five-year contract between Arkansas Best and the International Brotherhood of Teamsters was approved June 27, but some supplemental provisions were rejected. Officials with both sides negotiated the rejected provisions, and the seven “local/area supplements” were again placed on the local ballots for approval.

But Arkansas Best reported Thursday (Aug. 29) that only five of the seven supplements were approved. Neither the company nor Teamsters officials provided comment on how the remaining two supplements would be handled. Supplements not approved are from the Central Region Local Cartage and the Western States Office Employees—Part V.

“The national master portion of the ABF National Master Freight Agreement has previously been approved, but will not take effect until the status of the two remaining supplements is resolved,” noted a statement from the Teamsters.

“The five-year agreement is an important step to return ABF to its historic profitability, while preserving the best-paying jobs and benefits in the freight industry,” the company noted Thursday in a filing with the U.S. Securities and Exchange Commission.

Further delay in contract approval will prove costly for Arkansas Best. Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., said Friday it could be another six to eight weeks – “in a best-case scenario – before a contract is ratified.

Delco outlined in a previous note to investors what the contract means financially to Arkansas Best. He initially said benefits from the new contract would result in 2013 net earnings of 60 cents per share, or near $16.25 million. However, because the benefits of the new contract are not likely to begin until later in the third quarter, Delco in early August lowered the estimate to 30 cents per share.

For the same reason, Wells Fargo lowered its 2013 per share estimate for Arkansas Best to 43 cents from 67 cents.

It’s no small shift. For example, Delco’s lowered estimate shaves more than $8 million from the Arkansas Best bottom line. The lowered estimate by Wells Fargo reflects a reduction of almost $6.5 million from 2013 net income for Arkansas Best.

The newest delay may mean the savings don’t begin until the fourth quarter – not the timeline for which company officials were expecting earlier in the year. A 2013 in positive territory will avoid two consecutive years of losses for the company. In 2012, the company posted a $7.7 million loss, a wide swing from the $6.159 million gain in 2011.

Also, ending on a positive note means the company will have to perform well in the back half of the year. For the first six months of 2013, the company has a loss of $8.517 million.

Delco, however, is optimistic that company and union officials will hammer out an agreement.

“I feel pretty confident that we’ll see something that will be ratified and Arkansas Best will be on the path to profitability,” he said, adding that “both parties are interested in getting to a point where this is behind them.”

The contract delay could put downward pressure on third-quarter financials for Arkansas Best. The consensus of analyst estimates has the company earning 40 cents per share in the third quarter. Delco said “some may argue a slight deterioration” in earnings compared to the second quarter.

Second quarter net income hit $4.878 million, down 58.8% compared to the $11.8 million earned in the second quarter of 2012. However, the second quarter 2012 net income included an $8 million tax benefit. Revenue during the quarter was $576.899 million, well ahead of the $510.543 million during the second quarter of 2012.

Shares of Arkansas Best (NASDAQ: ABFS) closed Thursday at $26.59, up 11 cents. During the past 52 weeks the share price has ranged from a $27.48 high to a $6.43 low.