Arkansas Best Corporation (now ArcBest Corp.) — Q2 2011 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2011. The company is primarily a motor-carrier freight transportation business; ABF Freight represented 92% of consolidated revenue in the first half. Financial statements are unaudited.
Financial results
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Revenue | $498.6 million | $411.3 million | $933.5 million | $771.2 million |
| Operating income (loss) | $9.0 million | $(10.8) million | $(13.0) million | $(46.1) million |
| Net income (loss) attributable to company | $5.3 million | $(7.4) million | $(7.5) million | $(28.8) million |
| Diluted earnings (loss) per share | $0.20 | $(0.30) | $(0.30) | $(1.15) |
- Consolidated revenue increased 21.2% per workday in Q2 and 20.1% per workday for the first half. ABF revenue per workday rose 20.8% and 19.9%, respectively.
- ABF’s operating ratio improved to 98.2% in Q2 from 103.3%; first-half ratio improved to 101.7% from 106.8%. Q2 operating income was $8.2 million; the first-half operating loss was $14.4 million.
- First-half operating cash flow was $33.1 million, versus $19.2 million in 2010. Capital expenditures, net of asset-sale proceeds, were $15.4 million; dividends paid were $1.6 million.
- At June 30, cash and cash equivalents were $114.8 million, short-term investments $37.6 million, and restricted cash and investments $51.7 million. Unrestricted cash and investments totaled $152.4 million.
- Total debt, consisting primarily of capital leases, was $53.5 million, including $15.4 million current. Stockholders’ equity was $476.5 million. The current ratio was approximately 1.6x, based on reported current assets and liabilities.
- ABF’s labor costs fell to 59.6% of revenue in Q2 and 62.2% for the first half, from 65.6% and 68.1%. Fuel, supplies and expenses increased as a share of revenue, reflecting higher fuel prices.
Changes versus prior comparable periods
- Q2 moved from an operating and net loss to profit. First-half losses narrowed substantially, but the company remained loss-making year to date.
- Improved freight volumes and pricing supported revenue and operating results. ABF tonnage per day increased 9.9% in Q2 and 13.4% in the first half; billed revenue per hundredweight, including fuel surcharges, rose 9.5% and 6.0%, respectively.
- Momentum moderated within Q2: ABF’s year-over-year daily tonnage growth slowed from 15.8% in April to 5.9% in June. July daily tonnage was approximately 1% above the prior year.
- Accounts receivable increased $25.2 million and accounts payable increased $20.8 million from year-end, largely reflecting higher June business levels.
Outlook, risks and unusual items
- Management said available liquidity and expected operating cash flow, together with $75 million of unused receivables-facility capacity and equipment-financing options, should be sufficient for foreseeable needs. The company reported compliance with facility covenants and no borrowings under the receivables facility.
- 2011 capital expenditures were estimated at approximately $65 million to $85 million, net of asset-sale proceeds; actual spending depends on equipment availability, delivery timing and financing.
- ABF implemented a nominal 6.9% general LTL tariff increase effective July 25, 2011. Management noted that pricing improvements may not continue and that competitive pressure could constrain base-rate and fuel-surcharge recovery.
- Key risks include economic and freight-demand conditions, pricing competition, fuel-price volatility and surcharge caps, contractual wage and benefit increases, labor relations, self-insurance claims, and multiemployer pension exposure. About 76% of ABF employees were covered by the IBT agreement, which provides for approximately 4% compounded annual wage and benefit increases, subject to adjustments.
- ABF’s appeal in its NMFA dispute was successful: on July 6, 2011, the Eighth Circuit reversed dismissal and remanded the case for further proceedings. The outcome and financial impact remain uncertain. A separate PODS trademark and antitrust dispute was at a preliminary stage, with liability not estimable by management.
- In July 2011, the company paid $4.1 million to acquire the remaining 25% interest in its logistics subsidiary. The company also declared a $0.03-per-share dividend payable in August.
- Environmental cleanup reserves were $0.9 million. Management stated routine legal matters were not expected to have a material adverse effect, while certain nonroutine proceedings remain uncertain.
- Management cautioned that further losses could require additional deferred-tax valuation allowances and materially lower the tax-benefit rate. It also noted seasonal operating patterns and that interim results may not indicate full-year results.
Investor facts to verify
- Whether ABF’s improving pricing and operating ratio persist as tonnage growth moderates.
- How much fuel-surcharge caps and contractual cost increases affect margins and cash generation.
- Developments and potential financial consequences of the NMFA and PODS litigation.
- Whether deferred tax assets remain realizable and whether additional valuation allowances are required.
- Capital spending, equipment financing, pension-related obligations and the availability of committed letter-of-credit capacity.