Arkansas Best full year net income reaches $15.8 million, beats estimates (Updated)

Net income during 2013 for Fort Smith-based Arkansas Best Corp. was $15.8 million, much better than the $7.7 million loss in 2012 and the most the company has earned in a year since 2008. The per share earnings of 59 cents also blew past the consensus estimate of 47 cents per share.

Full year revenue for the transportation holding company was $2.299 billion, up more than 11% compared to the $2.065 billion in 2012. The largest subsidiary of Arkansas Best is ABF Freight System, one of the largest less-than-truckload carriers in the U.S.

Fourth quarter net income was $10.3 million, a big shift from the $7.9 million loss during the same quarter in 2012. The per share earnings of 38 cents also beat the 31 cents per share that was the consensus estimate among the analysts who follow the company.

However, the company had to deduct $1.435 million from fourth quarter earnings for expenses related to the new collective bargaining agreement with the International Brotherhood of Teamsters. That charge and other smaller accounting changes pushed recording fourth quarter net income to $8.4 million, or 31 cents per share.

"After a very challenging year in which we negotiated and implemented a new five-year labor agreement with the International Brotherhood of Teamsters, I am very pleased to report that ABF Freight ended the year with solid profitability, substantially reversing the unacceptable trend of losses in 2012," Judy McReynolds, Arkansas Best President and CEO, said in the report issued early Thursday (Jan. 30). "While that lengthy process was ongoing, we continued to make important strategic investments in our emerging businesses, all of which reported increased revenues and are well positioned for additional growth in 2014."

The company is also reducing the number of terminals it operates. In the conference call with analysts, McReynolds said ABF reached agreement with the Teamsters to consolidate 21 small terminals into nearby larger facilities.

Combined with the 8 terminal consolidations that occurred in the second half of 2013, this change of operations will result in reducing the total number of ABF Freight facilities to 248,” McReynolds noted in a transcript provided by Seeking Alpha.

Work to consolidate the terminals is set to begin in the first quarter of 2014.

Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., has said a complete “rationalizing” of the ABF terminal network could ultimately generate up to $32.5 million in annual savings for Arkansas Best, with each terminal closed saving the company just short of $1 million.

‘MORE STABLE ECONOMY’
Arkansas Best Corp. officials announced Oct. 30 that the ABF National Master Freight Agreement was ratified by the Teamsters’ ABF National Negotiating Committee. The new contract covers about 7,500 employees of ABF Freight System who are members of the union. Most of those workers are drivers.

The company has said the agreement will result in savings of between $55 million and $65 million a year. The savings come from an immediate 7% wage reduction that is recovered by the fifth year of the contract. The wage and benefit reductions were set to begin Nov. 3. The company was also able to negotiate for flexibility in work schedules and work across job classifications. Most of those workers are drivers.

The company said an increase in business resulting from “a more stable economy,” and higher shipping rates boosted fourth quarter earnings. The federal Bureau of Economic Analysis on Thursday reported its “advance” estimate that the U.S. GDP grew 3.2% in the fourth quarter compared to the third quarter. GDP was up 4.1% in the third quarter.

Tonnage shipped during the quarter was up 2.7%, and full year tonnage was up 3.4%. Shipments per day increased 5.6% in the quarter and were up 3.3% for the year. Billed revenue per hundredweight was up 2.3% in the quarter, but up just 0.1% for the year.

McReynolds said in the morning call with analysts that the company was able to renew contracts in the fourth quarter with a 4% increase. However, the company is estimating $4 million in lost business from the January winter storms that hit much of the country.

BUSINESS DIVERSIFICATION
Company officials are also making progress on their goal to diversify their revenue stream by boosting business through their non-asset (businesses other than ABF Freight) divisions. For the year, ABF Freight generated $1.761 billion in operating revenue, or 76.6% of total operating revenue. The percentage is down from 82.5% during 2012. Growing overall revenue while reducing the percentage of revenue from ABF better insulates the company from negative events in the less-than-truckload sector.

“For full year 2013 together, Arkansas Best's emerging non-asset-based businesses demonstrated strong, positive increases in revenue and operating margins and produced positive cash flow,” the company noted in the earnings report. “Because of continued growth throughout the year, these businesses now represent 25% of total consolidated revenue and contributed significantly to Arkansas Best's operating results.”

The value of diversifying revenue is evident when comparing operating income of the segments. For example, ABF Freight generated 76.6% of the revenue during the year, and 52.5% of the operating income. Panther Logistics, the second largest subsidiary of Arkansas Best, generated 10.7% of operating revenue, but cranked out 36.4% of the total operating income among the five subsidiaries.

SEGMENT NUMBERS
• ABF Freight
Operating income
2013 (January-December): $10.033 million
2012 (January-December): -$19.8 million

• Panther (premium logistics freight services)
Operating income
2013 (January-December): $6.956 million
2012 (January-December): $2.402 million (Panther was acquired in June 2012)

• Domestic/Global transportation management
Operating income
2013 (January-December): $2.973 million
2012 (January-December): $3.013 million

• Emergency/preventative maintenance
Operating income
2013 (January-December): $3.274 million
2012 (January-December): $1.935 million

• Household goods moving
Operating income
2013 (January-December): $1.85 million
2012 (January-December): $692,000

Arkansas Best shares (NASDAQ: ABFS) closed Thursday at $33.40, up $1.18. During the past 52 weeks the share price has ranged from a $35.96 high to a $9.62 low.