Hurricane Sandy and a continued weak freight environment were two conspirators that created a 2012 income loss of $7.7 million at Arkansas Best Corp., a swing of almost $14 million when compared to the $6.159 million net income in 2011.
Heading into the fourth quarter, the company was ahead of 2011 when comparing income and revenue. But a $2.4 million charge to adjust for workers’ compensation expenses and estimated lost revenue of $2 million to $2.5 million from Hurricane Sandy resulted in a fourth quarter loss of $7.9 million.
The per share loss of 31 cents was well off the consensus of analyst’s estimate of a 4 cent per share loss.
Fort Smith-based Arkansas Best Corp. is a transportation services holding company, with ABF Freight System its largest subsidiary. ABF is one of the nation’s largest less-than-truckload carriers.
For the full year, total revenue was $2.065 billion, ahead of the $1.907 billion during 2011. Fourth quarter revenue was $537.042 million, up 16.3% compared to the 2011 quarter.
One bright spot during the quarter was a tonnage per day increase of 0.4% compared to the fourth quarter of 2011. However, the 2012 tonnage per day fell 4.6% when compared to 2011.
“We are focused on a return to profitability at ABF by substantially lowering our costs in the next labor contract through negotiations that are now underway,” Arkansas Best President and CEO Judy McReynolds said in the earnings statement. “ABF’s management team is hopeful it will reach an agreement with the Teamsters that allows us to preserve good-paying jobs and protect our employees’ retirements through a lower cost structure that truly reflects the competitive nature of today’s LTL marketplace.”
Company officials were hoping to string together two consecutive years of positive income. Net income for 2011 reached $6.159 million, a huge swing from the $32.693 million loss during 2010. The company posted a net income loss of $127.522 million loss in 2009, with $64 million representing an accounting charge. The company posted net income of $29.168 million in 2008.
The company’s reserves – cash and short-term investments – as of Dec. 31 remain strong at $119.756 million, but are down from $175.255 million at the same time in 2011. Arkansas Best used $80 million in cash in the deal to acquire Seville, Ohio-based Panther Expedited Services. The deal closed June 15.
THE TEAMSTERS ISSUE
The existing labor contract will expire March 31, for the about 7,500 Arkansas Best employees represented by the Teamsters. The largest subsidiary of Arkansas Best is ABF Freight System, one of the largest less-than-truckload carriers in the U.S. Most of the 7,500 are drivers but the union membership also includes dockworkers, mechanics and office staff. Arkansas Best employs more than 10,000.
Negotiations between Arkansas Best and the Teamsters did not begin well, with each side issuing statements accusing the other side of misrepresenting their positions.
Also, Arkansas Best has alleged that wage deals between the Teamsters and YRC, a competitor of ABF Freight, violated a National Master Freight Agreement (NMFA). The NMFA, implemented April 1, 2008, was designed to create equal labor costs and other benefit payments among trucking companies with drivers represented by the Teamsters.
That lawsuit, first filed in November 2010, was recently dismissed a second time by U.S. District Court Judge Susan Webber Wright (Eastern District of Arkansas). Arkansas Best officials say they will again appeal the dismissal to the U.S. Eighth Circuit Court of Appeals (St. Louis).
The company noted in Wednesday’s earnings statement that an unfavorable contract would result in facility closures.
“Without significant reduction to this burdensome cost structure, ABF has informed Teamster leadership that extensive network changes will result, including closure of terminals and distribution centers.”
IMPROVED SEGMENTS
Another bright spot for the company is that its freight services businesses – officially known as “non-asset-based subsidiaries” – are doing well.
Panther Expedited Services, the logistics company acquired by Arkansas Best Corp. during the second quarter, delivered $132.326 million in total revenue. The truck brokerage segment saw full year revenue of $42.71 million, well ahead of the $25.429 million during 2011. The emergency and preventative maintenance division posted revenue of $115.968 million, up 25.2% compared to 2011.
Revenue from the non-asset-based operations were 17.8% of the 2012 total revenue for 2012, a marked improvement over the 10.6% level in 2011.
“We are pleased with revenue growth and improving profitability at our emerging businesses as they added up to more than 20 percent of our total company fourth quarter revenue,” McReynolds noted in the statement. “Expanding our portfolio of expedited and premium logistics services was a major initiative in 2012 as our customers’ supply chains grow ever more complex. We are encouraged by the trends we have seen in these businesses. Among other things, we added key sales and customer service personnel and invested in service-enhancing technologies, all of which were well-received in the marketplace.”
Shares of Arkansas Best (NASDAQ: ABFS) closed Tuesday at $10.63. The fourth quarter report was released Wednesday morning (Jan. 30) prior to the market opening. During the past 52 weeks the share price has ranged from a $19.50 high to a $6.43 low.