Different paths deliver better days for Arkansas truckers

It’s tempting to simply credit an improved national economy for improved finances at the trucking operations of the four publicly held companies based in Arkansas. But that temptation fails to account for labor contract changes, management shifts, auto sales, driver pay, driver shortages, federal regulations, bottlenecks at West Coast ports, energy markets and nasty winter weather. And that’s the short list.

Further complicating the analysis is that Fort Smith-based ArcBest, Lowell-based J.B. Hunt Transport Services, Tontitown-based P.A.M. Transportation and Van Buren-based USA Truck are wholly dissimilar in structure and operations.

ArcBest, through its ABF Freight subsidiary, is in the less-than-truckload sector with an emerging global logistics operation. J.B. Hunt is no longer a trucking company. It’s a logistics/freight solutions company, with its trucking division generating around 6% of total revenue. Despite attempts to diversify its customer base, around 40% of business for P.A.M. Transportation is tied to the U.S. auto industry. Of the four companies, USA Truck is the one that remains more of a common carrier trucking company, although its logistics business has grown in recent years.

Brad Delco, a trucking and transportation industry analyst with Little Rock-based Stephens Inc., said an improving U.S. economy “certainly” helped the four companies, but each company had to make changes unique to their operations to tap into improving economic trends.

ARCBEST (NASDAQ: ARCB)
Two big changes at ArcBest have been the $180 million acquisition of Ohio-based Panther Expedited Services in June 2012, and a new labor contract approved in the summer of 2013 with the International Brotherhood of Teamsters. The deal with Panther helped vault ArcBest into the higher margin logistics sector, and the labor deal is estimated to save the company up to $65 million a year.

The company has posted two consecutive years in the black. Full year net income in 2014 was $46.177 million, up 192% compared to the $15.811 million in 2013, and a wide swing from the $7.7 million loss in 2012. Total revenue during 2014 for the publicly held company (NASDAQ: ARCB) was $2.612 billion, up 13.6% compared to 2013.

As to company’s effort to generate more business from its non-trucking side, so far so good. In 2014, the company’s four non-trucking subsidiaries – Premium, FleetNet, ABF Logistics, and ABF Moving – generated $25.776 million in operating income, or about 34% of the total. Delco said the company is likely to “remain focused” on growing the non-trucking businesses.

ArcBest CEO Judy McReynolds isn’t comfortable with the changes. She’s set a 2015 revenue goal of $3 billion. Acquisitions could be part of that growth. The company has little debt, and as of Dec. 31 was sitting on almost $205 million in cash or holdings easily converted to cash.

J.B. HUNT TRANSPORT (NASDAQ: JBHT)
Trucking, the division that launched the company, began to struggle for several years after the Great Recession. In December 2013, the company decided to refocus on the segment and mades management changes toward that goal. In December 2013, Shelley Simpson, chief marketing officer and president of Integrated Capacity Solutions, was placed into a “strategic leadership role” with the trucking segment.

The company’s truck segment posted fiscal 2014 revenue of $385.603 million, below the $391.086 million in 2013. However, operating income for the segment was $24.223 million, a big jump over the $3.658 million in 2013. Company officials said rising rates and “rapidly declining fuel prices” helped boost income in the segment.

Overall, J.B. Hunt Transport Services boosted its 2014 revenue to $6.165 billion, a 10.4% increase over fiscal 2013. Net income for the year was $374.792 million, up 9.46% compared to the 2013 period.

In the first quarter of 2015, operating income for the trucking segment was $8.5 million, up 248% over the first quarter of 2014. Under Simpson’s tenure, and with the help of lower fuel prices, this once laggard segment has raised rates, increased rates per loaded mile, reduced maintenance costs, lowered insurance rates and reduced claims expenses.

P.A.M. TRANSPORTATION (NASDAQ: PTSI)
Times are definitely better for this company, which reported annual net income of $13.491 million for the 2014, a steady bump up from the $5.914 million reported a year ago. And with 2012 net income of $2.179 million, the company is on a three-year run of positive earnings.

But it’s been tough to recover from the national freight recession that began in late 2006. The company posted a 2011 loss of $2.857 million, a 2010 loss of $655,000, a 2009 loss of $10.847 million, and a 2008 loss of $18.765 million.

P.A.M. CEO Daniel Cushman has moved diversify the customer base, move more freight to and from Mexico and grow brokerage services. However, the company has between 35% and 40% of its business tied to the auto sector, and is the most likely among the four to be tied to national economic trends.

Auto sales have improved in recent years. There were 16.53 million cars sold in the U.S. in 2014, much better than the recession low point of 10.43 million in 2009, and the first return above 16 million since the 16.154 million car sales in 2007.

USA TRUCK (NASDAQ: USAK)
In late 2012 the USA Truck Board of Directors reached out to Harvard graduate Robert Peiser to chair the Board and get the company back in the black. Peiser, known in corporate circles as someone able to rescue a company for future growth or acquisition, hired John Simone in early 2013. He had a reputation in the trucking and logistics sector for tidying up troubled operations.

Peiser and Simone began making wholesale changes to USA Truck’s corporate philosophy, management and strategy. Officials with the long-haul trucking and logistics company announced 2014 net income of $6.033 million, a more than $15 million swing from the $9.11 million loss in 2014, and a gain that ended five consecutive years of losses.

The company’s trucking segment is still struggling, however.  The trucking division posted a $3.532 million operating income loss in 2014 – although it was a big improvement over the $17.66 million operating income loss in 2013.

Driving the gains are the non-asset side of USA Truck’s operation. The company’s Strategic Capacity Solutions (SCS) – logistics and freight brokerage – division posted operating income of $20.775 million, more than double the $9 million in 2013.

The company announced April 6 that Simone was on indefinite leave from the company to deal with a “serious medical condition.”

2015 FORECAST
Delco is bullish on the sector for the remainder of 2015. Driving the sentiment is “meaningful supply constraints” within the transportation sector, with those constraints more a product of driver availability than access to equipment.

Delco also sees wage growth and lower fuel prices resulting in more consumer spending, which is always good news for the freight industry. Also, federal regulatory changes are likely to make it more challenging for the freight industry to respond to growing demand, which will in turn allow freight companies to charge and maintain higher rates.

John Larkin, transportation analyst with Stifel Nicolaus, has said driver shortages are the biggest concerns for trucking CEO’s going into 2015. He projects the driver shortage to widen to 240,000 by 2020. He cites increased demand and retirements of veteran drivers along with declining interest from younger generations as the primary cause for the shortage.

Like Delco, Larkin said tighter federal regulations don’t help and it’s getting increasingly “more difficult to recruit honest, safe and reliable truck drivers.” He said just 5% of applicants industrywide meet all the requirements to be a commercial driver.