Saturday, May 28, 2016

ArcBest Corporation: Good Management Battles Poor Economics

ABF Freight has been ably managed for years despite an unfavorable economic position in the freight industry.

The biggest determinant of future success will be the evolution of the company's required contributions to multi-employer pension funds which are currently $150 million per year.

Assuming no pension relief, ArcBest is worth ~$25 per share, with significant upside from the resolution of funding issues at funds such as Central State not factored into the valuation.

One of Warren Buffett's oft repeated quotations is: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." The message being conveyed is simple: the underlying economics of a company are more determinative than management in how it performs financially.

In many ways, the situation that ArcBest Corporation finds itself in today is perfectly captured in Buffett's quotation. ArcBest Corporation is a transportation company with roots in the LTL industry that has expanded to include an expedited freight forwarder, a third party logistics provider, a mover, and a fleet maintenance and roadside assistance company. Seventy percent of revenues remain with its unionized LTL carrier, ABF Freight. In discussing the company, I would like to be specific in why I think the management team should be praised and why the economics of the business have been so bad. But I would also like to discuss the odds of the economics changing and whether or not ArcBest should be considered investable despite the historically poor economics.

Full story here.......

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