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Arkansas Best has a market cap of $442.3 million; its shares were traded at around $14 with a P/E ratio of 69.5 and P/S ratio of 0.2. The dividend yield of Arkansas Best stocks is 0.7%.
Highlight of Business Operations:ABF’s tonnage levels for the three months ended March 31, 2012 decreased 10.6% on a per-day basis compared to the same prior year period even though the first quarter of 2011 was negatively impacted by severe weather conditions. ABF has experienced decreases in year-over-year quarterly tonnage comparisons since the third quarter of 2011. The year-over-year tonnage declines have been impacted by ABF’s initiatives to improve account profitability, which led to increases in billed revenue per hundredweight for the same periods, the effect of moderating general economic conditions and comparison to significant tonnage growth experienced in the second half of 2010 through the first quarter of 2011. Although tonnage levels on a per-day basis for the first quarter of 2012 are 7% to 8% above the same periods of 2010 and 2009, during which time ABF experienced a severe freight recession, tonnage per day remains 11.6% below first quarter 2008 levels. During periods of significant tonnage declines, a larger proportion of ABF’s network costs become fixed in nature when maintaining service levels. The impact of general economic conditions and ABF’s pricing initiatives, as further discussed in the following Pricing section of the ABF Overview, may continue to impact ABF’s tonnage levels and, as such, there can be no assurances that ABF will achieve improvements in its current operating results. For the month of April 2012, average daily total tonnage for ABF decreased approximately 9% compared to April 2011 when ABF experienced a year-over-year improvement in tonnage of 16.3%. On a per-day basis, tonnage for April 2012 increased approximately 4% to 5% over March 2012 levels, resulting in the best sequential tonnage trend ABF has experienced between these periods in over 20 years. ABF’s revenues for the month of April 2012 were approximately 3% to 4% below April 2011, reflecting the lower tonnage levels partially offset by an increase in billed revenue per hundredweight, including fuel surcharges.
ABF is generally effective in managing its costs to business levels. ABF’s ability to effectively manage labor costs has a direct impact on its operating performance. These costs, which are reported in ABF operating expenses and costs as salaries, wages and benefits, amounted to 66.3% and 66.0% of ABF’s revenue for the three months ended March 31, 2012 and 2011, respectively. Labor costs, including retirement and health care benefits for ABF’s contractual employees that are provided by a number of multiemployer plans (see Note E to the Company’s consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q), are impacted by ABF’s contractual obligations under its labor agreement primarily with the International Brotherhood of Teamsters (the “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 3% to 4%, subject to additional increases for cost-of-living adjustments, as further discussed in ABF Results within the Freight Transportation Segment section of Results of Operations. The contractual wage rate increase effective primarily on April 1, 2012 under the NMFA averaged 1.9%. Contractual health, welfare and pension benefit rates under the NMFA are scheduled to increase by an average of 6.3% primarily on August 1, 2012. The total ABF increase in health, welfare and pension benefit costs on August 1, 2012 could be lower if the Central States, Southeast and Southwest Area Pension Fund requests no increase in the contribution rate, which would be consistent with the rate requested effective August 1, 2011.
Labor costs, which are reported in operating expenses and costs of the Freight Transportation segment as salaries, wages and benefits, increased $3.2 million, or 0.3% as a percentage of revenue, for the three months ended March 31, 2012, compared to the same period in 2011. The change in salaries, wages and benefits was impacted by a $5.3 million increase in workers’ compensation costs related to increased severity on existing claims and the impact of unfavorable experience on the ultimate expected development of claims. As a percentage of revenue, workers’ compensation costs for the three months ended March 31, 2012 were significantly higher than ABF’s 10-year historical average. Salaries, wages and benefits expenses included a $2.7 million increase related to additional sales and information technology personnel. In addition, salaries, wages and benefits included a $1.2 million increase in pension and retirement costs, primarily due to a historically low discount rate that was used to remeasure plan obligations at December 31, 2011 and lower than expected returns on pension investments in 2011. Labor costs also reflect higher contractual wage and benefit costs related to ABF’s union workforce under the NMFA. The annual contractual wage increase effective primarily on April 1, 2011 averaged 1.7%, and the health, welfare and pension benefit rate for contractual employees increased an average of 3.8% effective primarily on August 1, 2011. Under the NMFA, the contractual wage rate increase effective primarily on April 1, 2012 averaged 1.9%.
Unrestricted cash, cash equivalents and short-term investments increased $8.4 million from December 31, 2011 to March 31, 2012. The first quarter 2012 change in unrestricted cash includes a transfer of $23.1 million from restricted cash equivalents and short-term investments as a result of the reduction in the collateral requirements under the Company’s letter of credit agreements and surety bond program as further discussed in the following Financing Arrangements section. During the three months ended March 31, 2012, cash provided by operations of $4.9 million, cash equivalents and short-term investments on hand, including amounts released from restriction under the letter of credit agreements and surety bond program, were used to fund $1.1 million of capital expenditures net of proceeds from asset sales, pay $10.1 million of bank overdrafts (representing checks issued that are later funded when cleared through banks), repay $6.1 million of long-term debt related to capital leases and notes payable and pay dividends of $0.8 million on Common Stock. Cash provided by operating activities during the three months ended March 31, 2012 was $11.2 million above the same prior year period due to changes in working capital, primarily accounts receivable.
Unrestricted cash, cash equivalents and short-term investments declined $12.8 million from December 31, 2010 to March 31, 2011. During the three months ended March 31, 2011, cash, cash equivalents and short-term investments on-hand were used to fund operating activities, repay $3.4 million of long-term debt related to capital leases, fund $2.0 million of capital expenditures net of proceeds from asset sales and pay dividends of $0.8 million on Common Stock. Cash used in operating activities during the three months ended March 31, 2011 was relatively comparable to the same prior year period as the impact of improved ABF operating results was mostly offset by increases in working capital, primarily growth in accounts receivable associated with the higher business volumes in the first quarter of 2011.
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