Teamsters Deal Brings Flexibility, Value to ABF

by Marty Cook  on Monday, Dec. 9, 2013 12:00 am  

While analysts say it will take awhile for ABF Freight System Inc. to fully realize the benefits of its five-year labor agreement with the Teamsters, the deal is already going over well on Wall Street.

The company said it expects to save between $55 million and $65 million annually through lowered labor costs and benefits with the agreement, which covers about 7,500 employees and runs through March 2018.

What is obvious in the here and now is that the labor agreement has provided a healthy boost to the stock price of Arkansas Best Corp. of Fort Smith, the publicly traded parent company of ABF. When the labor agreement was first agreed to, back in late June, shares of Arkansas Best were trading at $19.99.

On June 28, the day after the agreement was announced, shares closed at $22.95 and more than 2 million shares were traded.

Arkansas Best closed Wednesday at $34.39, an increase of more than 72 percent since June 27. Arkansas Best has about 25.73 million outstanding shares, and a $14.40 increase in share price represents more than $370 million in market capitalization.

It’s clear why Arkansas Best CEO Judy McReynolds called the labor agreement a “milestone” when it was announced.

“Everyone liked the terms,” said Brad Delco, a transportation analyst with Stephens Inc. of Little Rock. “That has been seen in future earnings and the stock price.”

Stephens recently rated Arkansas Best “overweight,” a positive term perhaps only in the world of finance. Delco said overweight is Stephens’ term of choice for “buy,” and the firm pegged Arkansas Best’s target share price at $36.

Other analysts have pegged Arkansas Best shares at lesser figures, but still over the 52-week range of $8.42 to $25.98 the stock was muddling along at before the labor agreement.

Arkansas Best posted solid third-quarter earnings of $14 million, although the labor agreement seemed to have little to do with those figures. The national agreement was reached June 27, but because of resistance to some of the regional pacts, final implementation didn’t happen until Nov. 3. “It hasn’t shown up in results yet,” Delco said.

The agreement’s headline items were a 7 percent reduction in pay and one-week reduction in vacation, with workers eventually getting the pay reduction back in yearly 2 percent raises. Arkansas Best continued its level of contribution to health insurance and pensions.

“They didn’t have to give up much to do it,” said Delco, referring to the pay reduction. “Arkansas Best employees realized they still have it pretty good. Concessions had to be made to keep Arkansas Best competitive.”

 

 

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