Arkansas Best Corp. Reports Operating Results (10-Q)
Arkansas Best Corp. has a market cap of $651.6 million; its shares were traded at around $25.98 with and P/S ratio of 0.4. The dividend yield of Arkansas Best Corp. stocks is 0.5%.ABFS is in the portfolios of Michael Price of MFP Investors LLC, John Buckingham of Al Frank Asset Management, Inc., David Tepper of APPALOOSA MANAGEMENT LP, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, PRIMECAP Management.
Highlight of Business Operations: Consolidated revenues for the three and nine months ended September 30, 2010 increased 11.7% and 10.2%, respectively, on a per-day basis compared to the same prior year period, with the increase primarily attributable to ABF operations. Consolidated revenue growth was also impacted by business operations that are reported in the Companys revenues other than ABF, including increased roadside vehicle assistance services at Fleetnet America, Inc. and the effect of the acquisition, in late second quarter 2009, of a privately-owned logistics business.
During the three and nine months ended September 30, 2010, ABFs revenues increased 10.9% and 8.0%, respectively, on a per-day basis compared to the same periods in 2009. ABFs third quarter 2010 operating ratio (defined as percent of operating expenses to revenues) improved to 100.6% from 103.8% in the third quarter 2009. For the nine months ended September 30, 2010, ABFs operating ratio improved to 104.5% from 106.5% in the same period of 2009.
of ABFs customers, which has reduced ABFs tonnage levels and limited ABFs ability to secure adequate pricing for its services. Year-over-year tonnage began declining in the fourth quarter of 2006, and ABF experienced annual tonnage declines on a per-day basis of 5.3%, 4.2% and 11.4% in 2007, 2008 and 2009, respectively. Although ABFs year-over-year tonnage trends began improving in the first quarter of 2010, tonnage levels remain depressed with third quarter 2010 tonnage per day 9.1% below third quarter 2006. For the three and nine months ended September 30, 2010, ABFs tonnage improved 13.9% and 9.9%, respectively, on a per-day basis compared to the same periods of 2009. For the month of October 2010, average daily total tonnage for ABF increased approximately 16% compared to the same period last year. ABFs management believes the 2010 increase in tonnage is representative of modest year-over-year improvement in general economic conditions as indicated by measures such as the Institute for Supply Management Purchasing Managers Index and the seasonally adjusted Industrial Production Index published by the Federal Reserve. Although there are indications of economic factors that could contribute to further year-over-year increases in tonnage, there can be no assurances that ABF will achieve or maintain improvements in operating results based on ABFs current tonnage levels.
The industry pricing environment is another key factor in ABFs operating performance. The pricing environment, which generally becomes more competitive during periods of lower tonnage levels, influences ABFs ability to obtain compensatory margins and price increases on customer accounts. ABFs pricing is typically measured by billed revenue per hundredweight, which is a reasonable, although approximate, measure of price change. This measure is affected by freight profile factors such as average shipment size, average length of haul, freight density and customer and geographic mix. ABF focuses on individual account profitability rather than billed revenue per hundredweight when considering customer account or market evaluations, due to the difficulty in quantifying, with sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary to estimate true price changes. However, total company profitability for ABF is considered together with measures of billed revenue per hundredweight. Total billed revenue per hundredweight decreased 2.5% and 1.5% during the three and nine months ended September 30, 2010, respectively, versus the same periods of 2009. Excluding freight profile changes and increases in fuel surcharges, pricing on ABFs traditional less-than-truckload (LTL) business experienced percentage declines in the low- to mid-single digits during the three and nine months ended September 30, 2010 compared to the same periods of 2009, despite the general rate increase implemented in January 2010. Effective January 11, 2010 and January 5, 2009, ABF implemented nominal general rate increases of 5.70% and 5.79%, respectively, although the amounts vary by lane and shipment characteristics. The January 2010 general rate increase affected approximately 45% of ABFs business for the nine months ended September 30, 2010, while rate increases on the remaining business are subject to individually negotiated pricing arrangements that are effective at various times throughout the year. Industry pricing has been at historically low levels. During the nine months ended September 30, 2010, the pricing environment was very competitive and management expects the pricing environment to remain competitive throughout the remainder of 2010. The competitive pricing environment has limited ABFs ability to secure adequate prices to cover increasing operating costs and has adversely impacted ABFs operating results.
As a result of the extended recessionary economic environment and its impact on tonnage levels, ABF has implemented cost reduction programs. ABF is generally effective in managing its costs to business levels. However, during prolonged periods of depressed tonnage levels, incremental reductions in labor and other operating costs become increasingly challenging and less effective as a larger proportion of ABFs operating costs are fixed in nature when maintaining customer service levels. ABFs ability to effectively manage labor costs, which amounted to 63.3% and 66.4% of ABFs revenues for the three and nine months ended September 30, 2010, respectively, has a direct impact on its operating performance. Labor costs, including retirement and health care benefits for ABFs contractual employees that are provided by a number of multiemployer plans (see Note E to the Companys consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q), are impacted by ABFs contractual obligations under its current labor agreement primarily with the International Brotherhood of Teamsters (IBT). This five-year collective bargaining agreement, the National Master Freight Agreement (the NMFA), became effective April 1, 2008 and provides for compounded annual contractual wage and benefit increases of approximately 4%, subject to wage rate cost-of-living adjustments. ABF Freight System, Inc. and the Teamsters National Freight Industry Negotiating Committee of the IBT reached a tentative agreement in April 2010 for a modification of the collective bargaining agreement, which included a proposed 15% wage reduction and a performance-based incentive plan. However, in May 2010, the modification was not ratified by a majority of ABFs IBT member employees.
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