Arkansas Best income surges to $5.29 million

Fort Smith-based Arkansas Best Corp. blew past the consensus earnings estimate of Wall Street analysts to post second quarter net income of $5.298 million, a significant improvement over the loss of $7.444 million in the 2010 quarter.

The second quarter also ends 10 consecutive quarters in which the transportation holding company posted a loss. Arkansas Best is the parent company of ABF Freight System, one of the largest less-than-truckload carriers in the nation.

Total revenue for the second quarter was $498.55 million, up 21.19% compared to the 2010 period. The per share earnings reached 20 cents, clearing besting the consensus analyst estimate of 5 cents per share.

Arkansas Best President and CEO Judy McReynolds is happy about the return to positive territory and quick to note that the company has more work ahead in financially recovering from the past 30 months of losses.

"We are pleased with the improvement in our company’s performance and the steps we have taken toward restoring Arkansas Best’s historical profit margins," McReynolds said in a statement. "However, the progress made so far does not produce sufficient returns for our shareholders nor does it allow us to adequately recapitalize our business. Further profitability gains should result from improved pricing on ABF’s existing account base and from continuing efforts to achieve a more competitive cost structure. Our focus on growing business with customers who value ABF’s high level of service and wide range of logistics offerings should also positively impact our profitability."

The company, which employs about 9,500 nationwide, posted a 2010 net loss of $32.421 million, an improvement compared to a $127.522 million net loss in 2009. The 2009 income loss included a non-cash accounting charge of $64 million for the impairment of goodwill.

Total revenue in 2010 was $1.657 billion, a 12.55% gain over 2009 revenue of $1.472 billion, but still less than the $1.833 billion total revenue in 2008. In 2008, the company posted net income of $29.168 gain in 2008.

TONNAGE GAINS
McReynolds said increased pricing and better margins on more accounts helped produce the second quarter gain.

“Though these pricing actions have caused some business to go to other carriers, the success of our efforts is reflected in ABF’s return to profitability," McReynolds noted in the statement.

Tonnage (freight hauled) increased during each month of the second quarter, although the rate declined between April and June, McReynolds noted in a Tuesday morning conference call. In April, the tonnage increased 15.8% compared to April 2010. Tonnage increased 8.7% in May and 5.9% in June. McReynolds cited three reasons for the tonnage decline:
• More challenging tonnage comparison to 2010 gains;
• National “economic softness” that emerged during the second quarter; and,
• The company’s effort to “improve yields” on accounts meant the company lost some business.

Tonnage in July was up only 1%, but McReynolds said the business still looks good. Tonnage for the first half of 2011 was up 14.3% over 2010, and the number of shipments during the period was up 13.1%.

“I feel like our tonnage levels are healthy at this point,” she said during the call, adding that last week rates were increased that applied to about half of the company’s customer base.

STOCK PERFORMANCE
The second quarter per share earnings were not an upside surprise to analysts at Birmingham, Ala.-based Sterne Agee. Company analysts Jeff Kauffman and Salvatore Vitale are bullish on ABF and estimated the company would post per share earnings of 27 cents in the second quarter.

Also, Kauffman and Vitale estimated in a July 7 note to investors that Arkansas Best would post 2011 per share earnings of 85 cents, a considerable difference from the consensus estimate (from Thomson Financial Network) of a $1.30 per share loss.

Arkansas Best will need a solid third and fourth quarter to post a 2011 income gain. For the first six months of the year the company has a net loss of $7.51 million. However, total revenue for the first six months is $933.481 million, up 21% over the 2010 period.

Jack Waldo, a transportation industry analyst with Little Rock-based Stephens Inc., asked during the conference call if the company would use its cash position to repurchase stock or boost dividends to improve stock price performance. In January 2010, Arkansas Best cut its quarterly dividend from 15 cents per share to 3 cents per share to retain cash in the emerging national freight recession.

As of June 30, the company had $152.413 million in cash and short-term investments, up from $141.866 million as of Dec. 31.

ABC Chief Financial Officer Michael Newcity responded to Waldo by saying the company is “actively engaged” in organic growth or acquisitions as a way to boost shareholder value. He said as company officers “get more certainty” about the direction of the national economy they may consider a dividend increase.

Arkansas Best shares (NASDAQ: ABFS) opened Tuesday at $24.91, and surged almost 4% in early morning trading. During the past 52 weeks, the share price has ranged from a $29.08 high to a $19.01 low.