Thursday, January 25, 2007

LTL Carriers Trade Lower

Shares of less-than-truckload carriers traded modestly lower on Wednesday after Arkansas Best Corp. reported sharply lower fourth-quarter earnings.

Shares of Arkansas Best fell 51 cents to $38.10 in afternoon trading. At one point in the session, the stock traded as low as $37.15, or 3.7 percent off its previous close. Shares of YRC Worldwide Inc. gave up 39 cents to $41.81, while shares of Old Dominion Freight Line Inc. lost 12 cents to $26.33. All three names trade on the Nasdaq.

Arkansas Best said on Wednesday before the markets opened that its fourth-quarter profit sank to $14.2 million, or 56 cents per share, from $30.2 million, or $1.18 per share, during the same period in 2005. Analysts polled by Thomson Financial forecast a profit of 90 cents per share.

The Fort Smith, Ark., company cited "a sudden and dramatic reduction in business" in October and November. Analysts have predicted that fourth-quarter results from truckers would show weak demand, as retailers kept inventories tighter than usual during the holidays, automakers trimmed production and the housing slowdown continued.

Arkansas Best also reported higher costs related to the expansion of its next-day service.

Justin Yagerman, an analyst at Wachovia Capital Markets, expected the sector to trade down on the earnings miss, although most investors are aware of the present demand environment. He said Wednesday's weakness could create a buying opportunity and noted that Arkansas Best reported a 4.6 percent increase in the average price of renewed contracts in the period.

"We view this positively, as we believe this may be an indication that customers are increasingly hesitant to undercut their LTL (less-than-truckload) providers on price for fear of future capacity constraints," Yagerman said in a research note.

Yagerman thinks the sector will rebound on an uptick in demand during the second half of 2007.

Edward Wolfe, an analyst at Bear Stearns, expressed less optimism.

"We expect a second foot to drop in pricing throughout 2007," Wolfe said in his commentary on the Arkansas Best miss.

Elsewhere in the less-than-truckload universe, shares of Con-Way Inc. lost 17 cents to $45.67 on the New York Stock Exchange. Shares of Saia Inc. bucked the trend and gained 2 cents to $25.53 on the Nasdaq, as did share of Vitran Corp. Inc., which added 14 cents to $17.23 on the Nasdaq.

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