Financial Outlook Improves For Arkansas Best, USA Truck

by Michael Tilley ([email protected]) 49 views 

The outlook for two trucking operations that employ more than 1,000 in the Fort Smith region – and many of those being good-paying jobs – is improving. Fort Smith-based Arkansas Best Corp. is arguably beyond “the challenges of the past few years,” and Van Buren-based USA Truck is “in the early innings of its turnaround story.”

It’s safe to assume that shareholders, employees and execs at both companies are looking forward to financial and operational stability.

Arkansas Best, a transportation holding company whose largest subsidiary is national less-than-truckload carrier ABF Freight, has lost more than $82.3 million in the past five years – not including an unusual $64 million accounting charge to reflect goodwill impairment. And for almost a year, the company and the International Brotherhood of Teamsters worked to hammer out a new five-year labor agreement that was eventually ratified on Oct. 30, 2013.

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, with about 75% of the savings coming from wage and benefit reductions, and the remainder coming from flexible workplace rules and facilities consolidation.

Net income during 2013 for Arkansas Best was $15.8 million, much better than the $7.7 million loss in 2012 and the most earned by company in a year since 2008. Full year 2013 tonnage was up 3.4%, and tonnage for the first quarter of 2014 has continued on a strong path – up around 3% – despite winter weather that potentially shaved up to 3% from the tonnage increase. The company also said ABF billed revenue would have been up as much as 7% and tonnage would be up around 6% if not for winter storms that hit many parts of the country during January and February.

Arkansas Best President and CEO Judy McReynolds said during a March 4 Raymond James investor conference in Orlando that the “the business environment is better” with respect to conditions favorable for businesses under the Arkansas Best umbrella.

“I’ve been with the company for nearly 17 years, and I can honestly say that I’ve never been so excited about the opportunities that lay in front of us today that are within our reach,” McReynolds said in opening her comments about “an evolving story” at Arkansas Best.

She noted later in her conference remarks: “We’ve weathered the challenges of the past few years, and our current financial position equips us to move forward with growth and investments that benefit our shareholders, our employees and our customers.”

Also on March 4, ABF officials announced a rate increase to be effective March 24. The increase is about 5.4%, but the rates vary depending on location and load.

The increased tonnage and move to push higher rates – rate hikes that may stick thanks to tightening capacity in the national trucking industry – is why Brad Delco believes Arkansas Best’s financials “will begin to shine” in future quarters. Delco, a transportation industry analyst with Little Rock-based Stephens Inc., has a $42 target price on Arkansas Best shares. Company shares (NASDAQ: ABFS) closed Wednesday (March 5) at $35.73, up 84 cents. During the past 52 weeks, the share price has ranged from a $36 high to a $9.62 low. (Stephens Inc., Delco’s employer, has a market position in Arkansas Best and USA Truck, and does investment and non-investment business with the companies.)

However, Delco estimates the company will post a 15 cent per share loss in the first quarter, down from his previous estimate of 5 cents per share loss. The loss of business from weather is the reason for the downward shift.

“We think the weather impact on transports this quarter is very well known, and we view the accelerating top-line trends very favorably. As bad weather abates, we think the earnings power of the Freight business will begin to shine through along with greater contributions from the non-asset businesses,” Delco said in his March 5 investor note.

Delco does estimate the company will report full year 2014 earnings of up to $2 per share, and 2015 earnings of $2.80 per share.

McReynolds spoke during the conference of the company’s goal to generate more revenue from operations other than ABF (non-asset based operations). Other subsidiaries include Panther Expedited Services (logistics), FleetNet (an emergency/preventative maintenance company) and a household goods moving company.

ABF Freight generated $1.761 billion in operating revenue in 2013, or 76.6% of total operating revenue. The percentage is down from 82.5% during 2012. 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.

Revenue from the non-asset based subsidiaries was just short of $600 million in 2013. McReynolds said March 4 that the goal is for non-asset revenue to reach $1 billion by 2015.

With a little more than $194 million in cash and borrowing capacity, McReynolds also said the company is “very active in scoping and understanding acquisition opportunities.” She said “several teams” are now looking at such opportunities.

The outlook at USA Truck is better but considerably less rosy than that of Arkansas Best. USA Truck posted a net loss of $9.11 million in 2013 [3]. While an improvement compared to the net loss of $17.671 million in 2012, it marks the fifth consecutive year of losses for the trucking company.

In fact, the company has lost more than $47.9 million in the past five years. The last time the company strung together meaningful numbers was in the middle of the previous decade when 2004, 2005 and 2006 delivered net income of $7.432 million, $15.568 million and $12.441 million, respectively.

The resulting low share price created from the financial losses resulted in USA Truck fighting off two hostile takeover attempts by trucking companies who sought to gain USA Truck assets and business lines at near fire-sale prices. The latest takeover attempted ended in early February [4] when Knight agreed to pull back from its $9 per share offer.

Athough Delco believes USA Truck will finally report positive income in 2014 – 25 cents per share – he said the turnaround toward more stable finances is a “likely several year
process” considering internal and external factors the company faces.

“After a recent visit with Management we have had an opportunity to take a deeper dive into the operational changes that have been put in place at (USA Truck), as well as what challenges and opportunities remain for the company to proceed along with its turnaround plan. In short, both opportunities and challenges are plentiful but progress is being made and more importantly will take time to translate into results,” Delco noted in a Feb. 25 investor note on USA Truck.

Delco has set a $12 target on USA Truck shares. The shares (NASDAQ: USAK) closed Wednesday at $14.80, down 70 cents. During the past 52 weeks the share price has ranged from a $16.38 high to a $4.37 low.

“In our opinion, the Trucking business is both difficult and complex with typically thin margins and in addition to both processes and investments that need to be developed/made, a cultural mindset shift is also required that may take time to materialize,” Delco wrote.

USA Truck President and CEO John Simone declined to comment for this story.