Rough 2007 Still Expected
Arkansas Best Corp. went from zero to 19 cents in just one quarter to beat the earnings estimate of Stephens Inc., but market challenges loom in future quarters.
Neal Deaton, Stephens associate analyst, said the Little Rock-based investment banking and securities firm expected flat earnings from the company in its release Wednesday.
Instead, Arkansas Best reported that it earned 19 cents per share, down 17.39 percent from 23 cents in first quarter 2006.
Stephens has provided financial and other services to Arkansas Best within the past year and expects to receive or seek compensation for investment banking services in the next three months.
Analysts surveyed by Thomson Financial expected quarterly earnings of 15 cents, according to the Associated Press.
Despite the dip from last year, beating most analyst estimates may have been what pushed the company's stock price higher.
Shares of Arkansas Best (NASDAQ: ABFS) closed Wednesday at $41.52, up $2.32 cents. In the past 52 weeks, the price ranged from a $49.81 high to a $34.90 low.
Arkansas Best's largest subsidiary is less-than-truckload carrier ABF Freight System.
"Industrial trends that affect the LTL environment more than the truckload have been pretty weak," Deaton said. "Pricing will pick up more in TL than LTL. Many people were expecting a second-half, robust recovery, and we're almost into May. We certainly haven't seen any major changes."
Tonnage in second quarter 2006 was up 6.4 percent from second quarter 2005 for Arkansas Best, and that will make comparing second quarter 2007 to 2006 even tougher when it reports results again in July, he said.
What happens to the trucking industry and freight demand in May could give a better indication of what the rest of 2007 will do, Deaton said.
Falling freight demand was one thing that helped knock Arkansas Best's comparables lower in first quarter 2007 though.
Net income fell 21.73 percent to $4.8 million from $6.12 million in first quarter 2006.
Total revenue dropped 0.56 percent to $422.6 million from $425 million a year earlier.
Tonnage declines that began in the last quarter of 2006 slid into this year, too.
In a conference call with analysts Wednesday, Bob Davidson, Arkansas Best president and chief executive officer, said all three months saw dips of between 4.5 and 6.5 percent.
So far, he said April didn't look much better than March.
Arkansas Best continues to implement its new Regional Performance Model offering next-day and second-day delivery in most of its markets at an annual cost of $20 million.
Expanding the new service in the middle of what looks to be an industrywide slowdown in freight demand is challenging, Davidson said, but he still expects the RPM to payoff in revenue in the longterm.
"Arkansas Best's biggest problem is increased competition from UPS and FedEx in the long-haul arena," Deaton said. "It's a good move to go to next-day regional service, but it comes at a cost and will impact their quarters."
Notable
"The core fundamentals haven't changed much. Pricing has stayed stable which they're known for. You can't control volume. It's sluggish right now and there aren't many signs of improvement." Neal Deaton, Stephens Inc. associate analyst.
"With less than a year left before the expiration of ABF's labor agreement, we feel our conservative financial position is appropriate at this time. Our liquidity and financial situation puts us in an excellent position to take advantage of opportunities that might arise in contract negotiations, including solutions to deal with the underfunded, multiemployer pension plan." Judy McReynolds, Arkansas Best chief financial officer.
By The Numbers
1.62 million -- The number of shares Arkansas Best has repurchased since January 2003 for a total cost of about $56.8 million, according to the company.
15 cents -- Dividend to be paid on May 22 to Arkansas Best shareholders of record on May 8, according to the company.
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