Arkansas Best Records 2Q Profit But Says High Labor Costs Still Hurt

by Lance Turner and Chris Bahn  on Friday, Aug. 9, 2013 7:14 am  

Arkansas Best Corp. headquarters in Fort Smith.

Arkansas Best Corp. of Fort Smith on Friday reported a profitable second quarter but said it continued to sustain losses in the first six months of the year on rising costs at its largest subsidiary, ABF Freight System Inc. 

The publicly traded trucking firm (Nasdaq: ABFS) reported net income of $4.9 million, down 58 percent from the same quarter last year. Earnings per share reached 18 cents, down 59 percent from the same time last year.

Revenue $576.9 million, up 13 percent from $510.5 million during the same time last year.

The company missed analysts' expectations on earnings per share by a penny, but beat revenue predictions by more than $4 million.

But for the first half of the year, costs for salaries, wages and benefits at its LTL subsidiary ABF Freight offset improving revenue. Arkansas Best lost $8.5 million, or 33 cents per share, in the first six months of the year -- a wider loss than the $6.3 million, or 35 cents per share, loss the company reported in the comparable period.

Revenue in the first six months of 2013 reached $1.1 billion, up from $951.4 million during the same period in 2012.

“ABF was profitable during the quarter as it typically is during the second quarter, despite its continued high cost structure,” Arkansas Best CEO Judy McReynolds said. “However, year-to-date losses of $17 million at ABF continue to be unacceptable.”

Arkansas Best has spent much of the year working with the International Brotherhood of Teamsters on a new five-year labor contract for the company's 7,500 union employees. After months of back and forth, the two sides agreed on the National Master Freight Agreement in late June.

The contract includes an immediate 7 percent wage reduction, which the Teamsters said will "be entirely recouped by the fifth year of the five-year contract."

However, there are six supplemental contracts remaining to be ratified by Teamsters employees. Currently, the two sides are operating under a contract extension that ends this month. Ballots were mailed to Teamster employees earlier this week and are scheduled to be counted on Aug. 28.

On Friday, Arkansas Best said the higher labor costs have harmed its profitability. It said that for the first six months of 2013, Arkansas Best Freight's operating loss was $17.1 million compared to $14.2 million in the first half of 2012.

McReynolds said Friday that the deal with the Teamsters is "a milestone."

"Once this important process is concluded, it will represent a pivotal moment for Arkansas Best, as we will be able to turn our undivided attention to driving improved profitability at ABF, while continuing the expansion and growth of our emerging businesses," McReynolds said in a news release. "As our customers look to us for total solutions to their complex supply chain needs, we are now better positioned than at any time in our history to fulfill those requirements."

Recently the company announced internally the formation of ABF Logistics, an operating segment that will house intermodal and global shipping business and supply chain operations. McReynolds said the move allows for "a strategic reallocation of strong sales talent" into ABF Logistics and will allow "us to more effectively unleash the growth potential in each of these service offerings."

"We're exctied about the recent changes," McReynolds said.

Non-asset based operations within the company generated 23-percent of Arkansas Best revenue during the second quarter. All four of those businesses reported increased income.

Freight brokerage led the emerging businesses in revenue gains, with a 63-percent increase. Preventative maintenance saw a nine-percent revenue jump and almost 17-percent operating income boost for emergency and preventative maintenance operations. 

"As we turn our undivided attention to restoring ABF's profitability and growing our emerging businesses with the right investment in resources and talent, we are now better positioned than at any time in our history to meet the end-to-end solutions needs of our customers," McReynolds said. "While the U.S. ecomonic outlook remains OK, but not great, we know that serving our customers in even better ways, with the right products and services, is the key to our company's success."

 

 

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