Arkansas Best Corporation (ARCBEST) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; interim financial statements are unaudited. The company provides freight transportation and related services; its Freight Transportation segment (ABF) generated 91% of quarterly revenue.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Operating revenue | $440.9 million | $434.9 million |
| Operating loss | $23.0 million | $22.0 million |
| Net loss attributable to Arkansas Best | $18.2 million | $12.8 million |
| Loss per diluted share | $0.71 | $0.51 |
| Cash from operations | $4.9 million | Cash used: $6.4 million |
- Revenue rose 1.4%, while the operating loss widened by $1.0 million and the attributable net loss increased by $5.4 million. The effective tax benefit rate fell to 19.4% from 36.5%, including a $4.7 million increase in the deferred-tax valuation allowance.
- ABF revenue was $400.6 million, up slightly. Its operating loss improved to $22.0 million from $23.1 million; its operating ratio improved to 105.5% from 105.8% (below 100% indicates operating profit).
- Cash and cash equivalents were $138.5 million; unrestricted cash, equivalents and short-term investments totaled $183.7 million at March 31. Restricted funds were $29.5 million. Operating cash flow improved mainly due to working-capital changes, particularly receivables.
- Long-term debt, including current maturities, was $64.9 million, down from $71.0 million at year-end. The company had no borrowings against its $75 million receivables facility and reported covenant compliance.
- Shareholders’ equity was $449.4 million, versus $465.6 million at December 31, 2011. The quarterly dividend was $0.03 per share.
Material changes and operating trends
- ABF billed revenue per hundredweight, including fuel surcharges, increased 11.5%, while tonnage per day fell 10.6%. Management attributed weaker tonnage to pricing and account-profitability initiatives, moderating economic conditions, and comparison with strong prior-year growth. ABF revenue per day was approximately unchanged.
- Consolidated results included $5.3 million higher workers’ compensation claims costs, $4.8 million higher sales, customer-service and IT costs, $1.7 million higher pension and retirement expense, and $1.4 million higher depreciation. Lower third-party casualty claims costs partly offset these items.
- Truck Brokerage revenue increased 57.6%, with shipments up 56.7%, but operating income remained about $0.4 million as the company invested in personnel and IT. Emergency and Preventative Maintenance moved to a $0.1 million operating loss; Special Services Logistics moved to a $0.8 million operating loss.
- Operating cash flow improved by $11.2 million year over year. Investing activities used $13.8 million, and financing activities provided $6.2 million, including the release of restricted funds and repayment of debt.
Outlook, risks and unusual items
- No earnings or revenue guidance is provided. Management estimated 2012 depreciation expense of $80–$85 million and a capital expenditure plan of $80–$90 million, net of asset-sale proceeds. Estimated 2012 nonunion defined-benefit pension expense was $16.6 million, compared with $12.9 million in 2011.
- April 2012 ABF tonnage per day was about 9% below April 2011, while revenue was about 3%–4% lower. Tonnage rose approximately 4%–5% sequentially from March. Management cautioned that pricing improvements may not offset lost volume or cost increases.
- Labor is a significant risk: about 75% of ABF employees were covered by the Teamsters agreement, which expires March 31, 2013. The filing warns that failure to agree on successor terms could cause a work stoppage. Benefit contribution increases were scheduled for August 2012; the Central States pension fund remained in critical status.
- Management cited economic weakness, competitive pricing, fuel-price and surcharge uncertainty, fixed network costs, claims severity, pension costs, and deferred-tax-asset realization as risks. It reported $10.3 million in deferred-tax valuation allowances and said future results are difficult to project.
- ABF’s dispute over concessions granted to YRC remained pending, with outcome and financial impact undetermined. The PODS trademark lawsuit was dismissed under a confidential settlement with mutual releases. Environmental cleanup reserves were $0.9 million.
- The company reported that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether ABF can stabilize tonnage and improve its operating ratio while retaining recent pricing gains.
- Workers’ compensation claims development, pension expense and required multiemployer-plan contributions.
- Progress and terms of labor negotiations ahead of the March 31, 2013 contract expiration.
- Whether operating cash generation and available financing can support the stated capital plan, benefit obligations and dividends.
- Future deferred-tax valuation allowances and the outcome of the ABF contract litigation.