ArcBest Corp (ARCB) 2004 Q1 法說會逐字稿

Good morning my name is Shetina and I will be your conference facilitator today. At this time I would like to welcome everyone to the Arkansas Best Corporation first quarter 2004 earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time simply press * then the number 1 on your telephone keypad, if you would like to withdraw your question press the pound key. Thank you.

I would now like to turn the conference over to David Huntley, Director of Investor Relations. Please go ahead sir.

Welcome to the Arkansas Best Corporation first quarter 2004 earnings conference call. We’ll have a short discussion of first quarter results and we’ll open up for question and answer period. Our presentation this morning will be done by Mr. Robert A. Young, who is our President and Chief Executive Officer of Arkansas Best Corporation, Mr. David E. Loeffler Senior Vice President and Chief Financial Officer and Treasurer of Arkansas Best Corporation.

We thank you for joining us today and we want to help you better understand Arkansas Best Corporation and its results. Some forward-looking statements could be made during this call. As we all know, forward-looking statements by their very nature are subject to uncertainties and risks. For a more complete discussion of factors that could affect the company’s future results please refer to the forward-looking statements text in the company’s earnings press release in the company’s most recent SEC public filing. We will now begin with Mr. Young.

Well first let me say that we are not pleased with the first quarter numbers and I’m sure that you are not either and I suspect we’d all like simple answers to what happened at least a few areas of concern, I think that probably my best analysis of the quarter is that revenue production was anemic and that impacted us pretty much across the board.

The figures there speak for themselves tonnage was weak but on the one hand but trending in the right direction during the quarter, our productivity was not profitable but expenses remained in line and that’s not easy in a weak revenue environment and I think our operating people did a good job there. The cost increases in the quarter came in other than our production areas. Couple of examples certainly not the comprehensive list but couple of examples of some bigger numbers, workers comp and we had to adjust by a million and one for the lost development factor, that’s lost development on existing plain not tied to workers comp experience during the quarter but lost development on existing (inaudible)

Our depreciation numbers were up by another 1.1m that had to do with adjustments salvage values, various salvage values in line with market place and then depreciation on some new equipment they replace the old equipment this is not additional equipment but replacing trailers and tractors that were already fully depreciated.

These accrual adjustments though come in every quarter sometimes they are up sometimes they are down it seems like a slow quarter they tend to go in the wrong direction I don’t know why but its always a stick in the eye to have these types of negative adjustments when we got a weak quarter anyway.

The revenue trends for significant end of quarter, something that we certainly find attention to it as we do now. Our tonnage per day on ADF was only up by .3% during the first three months of the year compared to last year. It started off fairly slow. January was 2.3% below last year in terms of LTL tonnage the operating ratio was 101.5 so we really started off in a whole this year.

In February the tonnage level increased to 1.4% over last year and we were able to move that (inaudible) down to a 97.9. And then in March with daily tonnage of 1.3% on a 23 day work month, the operating ratio declined further to a 93.7. The true March ratio was probably below that early 91 something but those quarterly adjustments that went in March. So the trend in terms of revenue and in terms of operating ratio was certainly good obviously March is always better than January and February and that is always our weakest quarter.

My analysis is that essentially what we saw was a lot of tall cost increases that weren’t covered by the type of revenue increases we would like to have enjoyed in the first quarter. Now through the first 20 days of April, the average daily tonnage figures in our core LTL business are over 5% higher than comparable to the period last year and that trend continues in April and back accelerates a bit and we’re certainly encouraged by the net deposit in tonnage pattern. The operating ratio for ABF is certainly impacted by our operating leverage and as these revenues have gone up I expect that our OR will be improved a long way. I just, if that continues through the second quarter then things are looking a lot better.

The bill revenue per 100 weight was up 2% over last year so leave it in a weak revenues quarter we didn’t give away farm and actually I think our LTL revenue per 100 weight was probably up to closer to 2.4% when you take out the affected profile changes that we had during the quarter compared to last year.

Another interesting aspect of our revenue during the first quarter is that our two day range, in other words our regional lane was up 2.7% of revenue in our three day plus (inaudible) 3 days or more was up only 1.8% so we grew faster in our short haul lanes than we did in long haul lanes I think we are continuing to move into that regional market where we continue to make the market share here in the long haul business and that is an ongoing impact that we’ve had since we’ve started into that two day lane area about 4 years ago.

Cost increases in the quarter again were not related to productivity but more in terms of the ancillary items and I think that revenue will take care of a lot of that going forward.

Clipper did not have a good quarter. First quarter is always the weakest quarter for Clipper but we had some extraordinary things going on in the first quarter. We sold the LTL segment of Clipper as of December 31 last year. So, this is the first real quarter with - - or without the LTL segment.

The remaining segments are the Intermodal, which is full trailer loads or container loads on rail, the control logistics, which is reaper trailers on rail and then brokerage which is self explanatory.

Intermodal had a good quarter. It’s growing nicely. First quarter of the business was up 13.3% in our Intermodal business. Control logistics did not have a good quarter. It never does in the first quarter. It’s largely moving the produce out of California on those reaper trailers and that doesn’t really start until the second quarter, for the most part, with some residual business year-round but the business is pretty weak until the second quarter.

We have used LTL in the past to reposition those reaper trailers back to California, loading LTL in those boxes to get them back out there and we of course have lost a great deal of ability to do that now. The people that bought the LTL part of Clipper are using Clipper to some extent but obviously not to the same extent that Clipper did. And we lost roughly 25 LTL salesmen who sold the LTL segment and they were cross-sellers, helping us not only with control logistics moving trailers back to the west coast, but in the brokerage area, those salesmen or sales representatives were out providing business for brokerage from their LTL accounts and we lost some big ones there as we lost the sales representation. I think probably brokerage has hit its bottom and that’s starting to build back now.

Now, the other thing that impacted us in the quarter that will go away is that the LTL cost did not totally go away in the first quarter. We are still collecting freight bills and we are still processing freight claims with no offsetting revenues from LTL. That is rapidly disappearing and that will be gone in the not too distant future.

We also have the issue of the LTL period overhead, obviously, for the rest of the business and that’s had to be insured by the three other segments and to some extent that’s not all gone. As I mentioned, we’re still collecting freight bills and still processing claims. But things like most of our people - - majority of our people were involved in the LTL part of the business and we’ve got right now, twice as much office space at our general office for Clipper than we need that will be solved this summer [Indiscernible] we’re moving into smaller quarters, probably half of what we had before. With all the things that are tied to that, such as utilities etcetera. Those things will take care of themselves and we’re moving to get those things out of the way and behind us and I think you’ll see Clipper improve as the year goes along as we solve those problems.

I think probably, you know, I would like to tell you that all the problems in the first quarter related to weather, that we had weather this year and last year both. It was worse this year in January and worse last year in February, but if you take the quarter as a whole I don’t see a lot of difference in weather impact. It’s simply a matter of revenue production on ABF and I guess the good news is that the trends right now are pretty solid in terms of solving that problem.

With that, I’ll turn it over to David Loeffler our Chief Financial Officer to talk about some more of the detail. David.

Thanks Robert. In looking at the overall results for the first quarter, our revenues were $375m, up 8/10 of a percent from the previous year. Operating income was $8.3m, compared to $9.9m a year ago and our net income, excluding the interest rate swap fair value change last year was $4.5m, compared to $4.8m a year ago.

Also, our earnings per share again excluding the interest rate swap fair value change last year, was 18 cents versus 19 cents a year ago. In looking at the revenue for both ABF and Clipper, ABF’s revenue was on a per day basis, was up 3% and Clipper’s revenue excluding LTL from a year ago was up 2.6%.

For our cash flows for the first quarter of this year, I’d like to refer you to our GAAP cash flow statement, which is attached to the press release. Now, I’d like to review some of the more significant items from the cash flow statement.

Our net income before depreciation, amortization and change in the fair value of the interest rate swap, was $17m. We had net changes and working capital which increased cash a little over $1m, we had net purchases of property and equipment for $9.8m, capitalization of software $1.1m. We purchased treasury stock in the market for $3.9m and paid dividends on common stock of $3m and basically when you take all of that, our debt stayed at pretty much the same level it was at the end of the year and we had an increase in cash of almost $3m.

The status of our outstanding debt including current maturities, total debt at the end of the first quarter was $2.1m and we had temporary cash investment s of $5m. Our debt equity and debt capitalization ratio both were 0.01 to 1.

In looking at our internal financial measures, on an actual rolling 12 months basis ended March 31st ’04. Our after-tax return on shareholders equity was 13.6%. Our debt to equity ratio again was 0.01 to 1 and our after-tax return on capital employed was 12.7%, compared to our minimum acceptable level of 10%.

We continue to estimate net capital expenditures for this year to be in the range of $76m. Our depreciation and amortization for the first quarter was $13.4m compared $12.4m a year ago and our estimate for the full year ’04 depreciation and amortization is $59m. And now I’d like to open it up for questions.

At this time I would to remind everyone, in order to as a question please press * then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of James Valentine with Morgan Stanley.

Thank you. Robert, could you just address the sudden increase in April the 5% growth in tonnage, due think this is just the industrial economy or is there something else going on here?

James I think it’s an economic growth that’s showing up now. We’ve been expecting it based upon what we been reading in the newspaper but I think we’re now seeing the numbers. Nothing else there that I’m aware of.

Okay, maybe if you or someone can comment on the ongoing initiative to improve transit times and they’ve been working on this and I’m wondering first is it more focused than the long haul lanes or some of the shorter two day markets and then along the same lines that the Conway and FedEx Freight have told us recently that they believe they’re taking share in the longer haul markets but you’ve mentioned it looks like, you believe you’re taking share at least growing fastest in the shorter haul lanes. I’m wondering if this mix shift could somehow be the reason why we didn’t see margins improve in the quarter?

No I don’t think that the mix shift had anything to do with the margins. Typically in the first quarter we become more aggressive on large shipments truckload freight. Of course we had some impact this year from the (indiscernible) service on that and we do that because it’s typically a slow quarter and it’s typically the slowest quarter of the year and so we take on some larger shipments at lower rates, they can still be profitable but they yield a force operating ratio. You’re better off doing it than not doing it but it gives your worse operating ratio and I think that is part of the issue. We probably took on more this year than usual because our revenue was so flat. And that’s probably more the impact on the OR.

Okay great, if I could just ask one last question, an update on any impact from the Yellow Roadway merger?

We’re not seeing any impact there, we get accounts from Yellow and they get accounts from us, Yellow and Roadway I guess I can say but we don’t see any trend there at this point.

Do you sense that they’re working together more closely that they’re, you’re not getting situations where Yellow and Roadway’s separate sales people come in, will bid against Arkansas Best, or do you sense that they are now (indiscernible).

No we see them bidding against each other on many occasions.

We’re hearing that too

Yes, that’s unusual I guess but that’s what they seem to be doing.

Okay, great thanks so much guys, I appreciate it.

Your next question comes from the line of Daniel Moore with Stephens Incorporated.

Morning Guys

Good morning Daniel Moore

A couple of questions here Robert and Dave, maybe if and I don’t know to the extent that you can give us this information on hand but operating ratio trends last year and in March, you provided the statistic for the most recent March. Can you remind us where the OR was in March (indiscernible).

I don’t have that right in front of me. March typically is a good month, it’s just generally a long month and it’s generally, as the economy annually regardless of what general shape it’s in the economy annually starts picking up in March but I don’t remember what was the OR last year.

Dan, we don’t have the OR’s right here, my memory is though that January was worse this year than a year ago. But I don’t have the specific numbers.

Okay, fair enough. With respect to the Easter Holiday could you tell us a little bit about how we need to be thinking about that in the context of first and second quarter results? If my memory serves me, Easter came around three and a half weeks earlier last year so I’m just wondering how that may play out here as we model.

Dan it was only just one week different. It was last week-end last year, the week-end before this year.

Dan, we had to get through 19 or 20 days to have comparable numbers for April, which we’ve done so the numbers that we’re talking about when we’re looking at a little over 5% LTL tonnage growth. That has the impact of Good Friday in Easter and the day after Easter in both years.

Okay, and then just a couple of other questions here guys. With respect to hours of service, there’s been a lot of discussion about how that’s influencing LTL results both truckload tonnage and LTL tonnage. Robert, what are you guys seeing in your results. Are you seeing a more significant impact in LTL than results might suggest here and we just can’t get the detail on it, how do we need to be viewing that?

We thought we might get that question, Dave Loeffler and I were talking about that before the call. Dave why don’t you tell him the numbers the best we can give him.

Okay, and these Dan, these are estimates and pretty rough estimates I might add based on looking at heavier LTL and TL shipments. In total our tonnage per day increased 2.1% that’s truckload and LTL. We’re estimating that about one and a half percentage increase in the tonnage was because of hours of service for the heavier shipments, that’s a better way to say it because we can’t necessarily say each of these shipments or hours of service we’re just kind of attributing all of the heavier shipments to being hours of service. That’s a rough estimate.

And then just to follow up on one of Jim’s question earlier with respect the reduction in transit times. Could you talk to us a little bit about what you’re doing in the expedited market that your efforts to penetrate that market in light of some of the results that your peers have posted?

Well, Dan I think that some of our competitors have done a better than job than us on getting into that market. It’s a very lucrative market in terms of operating ratio. It’s not a matter that we didn’t have the product, I don’t think we were emphasizing it enough. We’re beefing up our sales efforts in that area and we’re putting some salesmen in that area that will just specialize in the time sensitive market which some of our competitors have done and its growing rapidly I might add. So our efforts are paying off but we got a little bit behind on that. We had products but I don’t think we promoted it well enough.

Sure. What ---I guess at what point Robert did you begin to put a more significant focus on developing net service offering is that in---

Cause we started working on it in the first quarter

Okay, okay and then maybe just to shift gears real quick her guys. With respect to cash flow, certainly if I don’t ask this question I know somebody else will so I’ll just go ahead and do it now. You got a lot of free cash flow, stocks obviously well below where it was when you made your ---or far enough below that would probably more answer the question. At $27 do you feel like the use of that cash is maybe better spent in the area of stock repurchases? What are you thinking about respective to cash flow?

Dan, I think our answer is the same as it has been. We’re now paying a pretty significant dividend and we continue to look at opportunities to buy back stock. We think it’s the right price on an opportunities to basis. I don’t want to get into telling you what we think is the right price.

I understand.

But we fully plan to spend the money that the board approved the $25m overtime to buy in stock.

And last question here and then I’ll go ahead and turn it over. With respect to business trends you’ve experienced here over the last three or four quarters or maybe even beyond that. As we look out into the second half of the year I can’t help but assume one, your comparisons get easier and two, that the tonnage trends should start to look very nice, you know, call it over the next 6 to 12 months and April seems to be bearing that out. Is there anything we should be thinking about in the second half of the year that maybe we haven’t discussed so far? My sense is you guys are pretty optimistic about the outlook for the second half of the year without discussing numbers and thinks about nature.

Well certainly our experience through the two thirds of April makes us feel a lot better about the balance of the year. The anemic relative production in the first quarter was up to turn cause it makes awfully hard to cover what I call creeping cost increases. The operating leverage from that additional revenues and tonnage generally has been really good for us in terms of ORs and earnings. If that continues, and at this point I don’t see any reason why it won’t for the time being, pretty optimistic.

I think one of the things that I like about---is the growth that we’ve had in April and we were growing during first quarter it was not quite as robust obviously. It’s coming from small and medium size accounts and it’s not coming from large national accounts which generally tend to not be as profitable and if you loose one and there, they tend to be pretty---but the large accounts tend to be pretty sensitive in terms of price and if you loose one it’s a big hit. Our growing now with small medium size accounts and that’s a good solid base of business. I like that aspect of our growth.

We also looked at where the growth is coming from and its coming from the central part of the country, not so much the West coast or East coast with one third of the country in between I guess its call it fly over country.

Sure

And that’s you know good solid base for us there. That’s the area we’ve served the longest over the years and that was not the case during the economic down turn. We were seeing more growth in the West Coast in particular. It is now more or less average in the central part of the central part of the company. The company seems to be the part that’s really growing forward.

Guys I’ve taken up a lot of time thanks I really appreciate it.

Dan let me make one more comment. We continue to talk a lot about the leverage we have and I think again it’s important to remind everybody that we have a very similar terminal network to that of Yellow or Roadway but about half the business. And I think the best example over leverage is to look at our results for January which were with an operating ratio of 101:5. March we add 10% more LTL tonnage that we did in January and our operating ratio drop to 93:7. So I think that’s a good example of the type of leverage that we have.

Point well taken. Thanks.

Your next question comes from the line of Ed Wolfe with Bear Sterns.

Hey guys just following on that point Robert did, 93:7 kind of gets you back to where you were in first quarter of ’01. Is that where you are from a capacity perspective right now? You’re back at where you were in ’01 and to see a margin, you know, like in 99 or ’00? You still need more Freight in the network? Its capacity is somewhere near to where it was back then?

Ed we still have capacity I don’t think we’ve nearly reached capacity with ABF. We can probably take on another 10, 15% of business but before we really began to hurt in terms of door pressure and perhaps equipment.

And at 10, 15%, you know, say that, that a couple of years what kind of OR do you think you’re doing? Are you back to 90 like you were in 2000 for the year?

Well I don’t know there’re so many extenuating circumstances in fact there is that come into play but certainly I’m much better overall than we experienced in first quarter.

Why is it that you mention to be seeing a different economy than every other company that we’ve seen report today? You’re the only ones who tell us January and February felt miserable. We’re just hearing about this heated up economy that’s been getting better and better but was very strong throughout---is it something about your customer base do you think? Is it something about long haul LTL? Is there more competitions from the regionals, what’s your sense of this?

Well I don’t know. We were hearing particularly from the truck load sector a lot about strength in the economy. I think to some degree the LTL sector follows the truck load sector. I think you’ve seen some regionals that have shown stronger growths in us in the first quarter. To some extent there--- well not to some extent but one case in particular yields were not as good; perhaps they bought some of that business. But the phenomena of the change between the first quarter and what we are seeing in April is something I really don’t have an answer to them. I don’t want to question it too much I kind of like it.

Yep, but I think that’s an interesting answer that generally lagged and you’re feeling it now. In terms of what you’re going to do---so if the answer that am hearing from you cause you already expressed the issues being revenue shortage and you know, it begs the question do you go out and market harder? Do you just discount, what do you do? It sounds like you do nothing because the economy is coming towards you is that fair to say.

Yeah, I think one mistake you can make in this business is to go out an buy a bunch of business during a downturn and it looks good at the time but then when the economy comes back, you’re stuck with a bunch stuff that’s not compensatory and you’re going to have to add capacity to handle it along with whatever growth you’re getting from the economy and it sort of ratchets your cost levels up on business - - it does not really pay its way. So, I think what we have done in the long run is going to work out pretty good if this economy continues to rebound.

The LTL revenue for a hundredweight (inaudible) fuel was 1.9 in the quarter, but if you right size it for fuel and the change in mix and everything else, what’s your sense of pricing, where are we at, is it good, bad, kind of in the middle what’s your sense of it?

You mean across the industry?

Yeah, what you’re seeing with your competitors?

Right now it seems pretty sensible, you know, occasionally somebody will go on a streak of doing what we don’t think makes sense, but right now I would say that generally speaking, pricing is pretty sensible.

And would you say directionally that’s staying the same, getting better or getting worse?

Staying the same….Yeah Ed, I would like to come back to your first question on capacity. In the first quarter our LTL tank is still running about 12% below first quarter of 2000, so that kind of gives you an idea of the capacity we have and the leverage we have.

And you still have that same amount of capacity or more or less than you had in 2000?

Oh, maybe a little less when you look at the total cost structure but not a lot.

And just one last question, as you also mentioned earlier in the call about growing a little faster in the regional market, have you put some thought in terms of timing of going to teamsters and trying to negotiate into the next day market as opposed to just a second and third day market at this point.

No, we don’t have any plans to do that.

Are you seeing your largest competitor do some of that stuff?

No, not at this point.

Okay, I said this was my last question, so I’m obviously a liar already, but just a one last one. The regional guys are you seeing any difference are they more aggressive coming at you? Some of these regional guys are getting into longer and longer haul lanes, is that becoming a bigger competitor for you directionally?

Well, they’ve always been interested in any business they get and have always been aggressive, I don’t see a lot of change in their direction, like I said they’ve always wanted to handle some of that business and they continue to solicit it. I think we do a better job than them in those lanes, but no real change.

Okay, thanks a lot guys for your time.

Your next question comes from the line of John Larkin with Legg Mason.

Hey, good morning Robert, good morning David.

Morning

John.

Question regarding the way the NMFA works and when your labor costs kick up, my recollection was that that happened on the anniversary date of the contract which is either March 31st or April 1st, is that correct?

Yeah, wages were April 1st and I think fringes are August.

Okay, and the normally the general rate increase which you would think would be pretty well absorbed in this particular economy, they usually go in around the 1st of July, is that correct. And do you have any plans to maybe move that up this year?

I don’t know, we don’t have any specific plans right as to when we might propose a general rate increase, but my guess that it will sometime soon.

And your mix between contract and what I’ll call tariff freight is still about 50/50, or has that changed over the last year or so?

No, our mix is more like 35/65.

35/65 - tariff/contracts, or the other way around?

The other way around. Less contract more tariffs.

Okay and that seems to be even maybe moving more in that direction with your success in picking up some of the freight from the smaller shippers in the mid-west here lately.

Yes sir.

Now one other question regarding your activity hauling truckload freight in the first quarter. Did you offer that service directly to customers or was there a broker involved or in some cases maybe both.

No, that’s all dealing direct.

Okay, now it appears that the truckload market may be a little tighter with respect to supply and demand at the LTL industry is right at the moment, and I’m wondering if you think that you may have opportunities to do a little bit more truckload business perhaps as the year develops at very attractive rates given that the alternative for customers is to play the spot market, where truckload rates have really shot through the roof.

John we have as we’ve been going through the quarter continually - - most of that - - a lot of that additional truckload business is spot market. We have been increasing the pricing as we’ve been going through the quarter and we’ve had amazingly good success at continuing to track the firm rate.

Okay, that’s very helpful and I guess if you have 10 or 12% more capacity even with the LTL market heating up there’s no reason why you can’t continue to opportunistically take advantage of what is a very tight situation in the truckload supply and demand picture.

We do that and we just get more selective as we move into the busier quarters because we got less excess capacity.

Okay, that’s very helpful, thank you very much.

Your next question comes from the line of John Barnes with CSFB.

Hey guys, good morning.

Hi John.

Lets see, in terms of, you know, the business trends which we saw in January and February, is - again - just going back to the comment you’ve made that generally you guys lag and now you’re beginning to feel - that this - Is this, you know, because of the way you structure your business, is it the way you know, that you’ve got sales force incented. I’m just trying to get a handle around this, because you know it seems, I don’t know whether to be concerned about the overall number in the quarter or whether to be more positive about the trends that we saw in March and April and I’m just trying to think, besides the economy is that all it was in March and April you kind of got this thing going in the right direction?

To kind of finish up the quarter and if it was January and February was an issue or it is because you typically lag or was there something more fundamental? Is there something that the sales force wasn’t doing or what?

Well this impacts everyone but in terms of our first quarter, the way the months were laid out was about as bad as you can hope for. January 1st came on a Thursday so a lot of people didn’t work Friday and you had about a half a day’s business on that Friday which was the first revenue day in the year.

In January then we were hit with weather as was everybody else and more than we had in January the previous year, on the other hand February turned out the other way. The weather was better in the previous year, the amounts there were probably not much different in the quarter.

February had an extra day this year but unfortunately it was Sunday, so there was no additional revenue production on the 29th but we had additional cost. We continue to over the road, our brake vault terminals and our larger end of line terminals go ahead and operate on Sunday. So we have cost but not the revenue so February was again ended bad and that aspect of the 29th -- fortunately that doesn’t happen very often, you don’t have an extra day very often. When we do, it isn’t always on weekend but in any event the way the first quarter laid out the first two months were pretty unfortunate, the way they came out on the calendar.

March on the other hand was a Humdinger. It started right, ended right. We had 23 work days and you would expect it to be better it is every year, but it was significantly better this year. And it was in terms of revenue production began to show strength trending strong in the right direction I guess the surprise is how much stronger April has been through two thirds of the month I wasn’t looking for that.

Our sales force was telling us they had a lot of stuff going, lot of good things happening and in April they finally began to put it on the trucks. I think that it is largely the economy. I think the question that’s out there about the month -- any of you – are you seeing some impact from the yellow road way deal and at this point we really don’t. That doesn’t mean that we’re not from time to time take a break from Yellow or Roadway but we’ve always Freight (indiscernible) but I don’t see any trend there I think it’s the economy. Perhaps that bodes well for the balance of the year.

Okay in terms of Yellow Roadway is there anything surprising thus far trend wise that you’ve been a little bit surprised about? We haven’t heard about a tremendous about freight diversion yet, are you surprised it hasn’t happened yet and it’s going to happen? Or do you believe that it comes a little bit later in the cycle and therefore when we look at your business we should just be focusing on the economy right now and maybe some of the other external factors maybe a little bit later in the cycle?

Well I don’t think you’re going to see much happen there as they operate separately. That would be dramatic, the only thing in my opinion that would cause a dramatic shift would be if they could put the companies together which they say they’re not going do. So I don’t look for a dramatic shift there, operating them separately you may see some shift over a long period of time. Just because of the potential problems they run into in terms of morale that sort of thing, but I don’t look for anything dramatic as long as they operate themselves.

Okay thanks for your time guys.

Your next question comes from the line of Ken Hessler (ph) with Merrill Lynch.

Good morning just wanted to follow up with you on the leverage for the quarter, we saw salaries and wages really spike up at ABS as well as rents and purchased transportation. Just not a percentage basis year over year as percent of revenue, just wondering is that where you’re talking about the extra cost kicking in because of the soft volumes in January, February so with the improved volumes in March and April should we see that come back down or is there something else within those numbers that need a a little explaining thanks?

Ken I that since we’re talking about the leverage kind of across the board. When you look at salaries and wages the primary reason about that increase is percent of revenue, one as Robert mentioned was the increase and the loss development factor after workers compensation that added a thousand million more to the cost there. And then we also had a 6.5% increase in the fringes August 1 last year and that added to the increase in percentage there as well.

In looking at rents and purchased transportation that was purely a function of increased rail miles that were--- where we were using more because we were growing in some out of balance lines.

So what was the percentage---I’m sorry I missed the percentage of mileage this quarter on rail?

The percent of miles I think its 14.05% and that was I think 14.4% a year ago.

Okay great thank you David.

Your next question comes from the line of Gregory Burns with J P Morgan.

Just want to zero in on the tonnage performance I guess how important do you view your market share as a key metric to drive profitability? And then secondly it doesn’t sound like you’re concerned about it because of the pickup late in the quarter but I just want to make sure that I understand what you’re thinking are you thinking essentially that in your core markets you’re maintaining your share or do you believe that you’ve lost a little share and how important is that or is it not?

I think overall we think market share is important but we try to balance market share and profitable business. We feel that in the shorter haul markets we might be gaining a little bit of share in part because we’re seeing two day market grow fast than the longer haul market. But at the same time when we look back at previous quarters, previous years and we have all the information we see that we’re primarily maintaining market share in the longer haul market some up, some down at different quarters but overtime it doesn’t change too much.

Okay and I noticed on the competitive front you seem to talk a lot about Yellow Roadway, but Overnight seem to be growing quite quickly do you not really see that that company as a head to head competitor versus Roadway Yellow?

Well yes we tend to talk about Roadway Yellow because they are the most similar carriers. But certainly there are lots of other carriers out there beyond Overnight that we compete with every day. It’s just that we tend to talk about Roadway Yellow as a group because they are the most similar to us.

And finally on the economic pick up that you’re seeing maybe at some what of a lagging indicator versus some other the other companies we’ve seen. But do you think that’s a function with inventories or do you think it’s a function of -- what do you think I mean we’ve had pretty strong economic data here earlier in the quarter. What do you think is driving the late surge as opposed to perhaps an earlier surge?

Well one thing that we think probably is going on is when people start rebuilding inventory they probably tend to do it in truck load lots. And then as they begin to replenish, more of it become LTL. That’s why I think we lack the truck load sector to some degree on the LTL side anyway. And I can’t confirm that that just my thought and I don’t know how accurate it is.

Okay thank you.

Your next question comes from the line of Ed Wolf with Bear Stearns.

Just a follow up here because I heard what had sounded like a very different change in what you’ve been saying the last couple quarters about Roadway and Yellow. I mean I have in my notes and I remember you saying just a couple of quarters ago that you thought there was an aggressive opportunity to take some freight from Roadway and Yellow based on the merger. And now I’m hearing from you that you’re saying you’re not going to see that freight unless they merger the two networks and it doesn’t look like they’re going to. Am I reading that right that’s a change in your expectations?

No I don’t recall saying that we felt that there was a good chance to become aggressive with Roadway and Yellow. If we said that we didn’t mean it. As long as they operate them separately there is no event that will cause them to lose business. I think over time that they – that combination will probably loose market share just because people will begin to look at them as the same carrier whether they merge them or not in terms of having diversification in there carriers. But that remains to be seen. We’ll have to look back at that over a period of 2, 3 years to see if that in fact has happened.

But as long as there’s no big event like putting the two companies together I don’t really see a dramatic shift in business away from this company.

How about employees, have you seen any employees coming your direction from them?

No nothing to speak of I mean we occasionally hire somebody from one of those companies as they do from us. No trend there.

Hi Ed what we talked about in the past other than you know what I think what was the point Robert just made was a lot of customers confuse them as the same carrier as opposed to different carriers. But the other thing that going to the event issue we said that you know if some thing will need to occur that impacts the customer. And the most likely thing is when they start some consolidation whether its individual terminals or the whole company or branch or whatever. Some thing that the customer sees as an impact on them, that would most likely be the kind of event which where you could see quite a bit of business movement. And that’s based on our own experience when looking back to the Carolina acquisition.

Yes that make sense thank you very much.

Your next question comes from the line of Mike Peesley (ph) with BD&G Capital Market.

Morning Robert and David.

Good morning.

Your two day lanes I think refresh my memory, I think at one point a couple of years ago they represent some where around 30% of your LTL freight. But may be that’s wrong.

That’s about a third. That’s right.

And has that change at all over the last couple of years – just curious to how that dynamic has played out. And maybe I know it’s something that you’re focused on a little bit more than maybe you have been in the recent past, where would you like that to go? Or where can that go?

In coming to the first part of your question it hasn’t changed a lot over the last couple years and a lot of that is masked by the Consolidated Freightways demise. Because – excuse me – for about a year after CF went out of business they tended to have the longest link to haul. And so our link to haul was going up and we were growing more in the longer haul lanes. Now we’re past that period we’ve got comparable numbers. And so we are again seeing that grow a little bit faster in the longer haul lanes. But for at least 12 months after CF went out of business we were seeing it go the other way. But that was a result of the characteristics of the freight.

Well that make sense and I mean is this some thing that you could grow to 40, 50% of your freight volumes?

Well not quickly I think it will be a slow – if it continues I think it will be a slow shift but I don’t think it look for it to get to that any time soon. That might take place over 7, 8, or 9 years or some thing like that.

Okay well thanks for your time.

At this time there are no further questions. Mr. Huntley do you have any closing remarks.

We just want to thank you for joining us this morning we appreciate your interest in Arkansas Best Corporation.

Thank you for participating in today’s Arkansas Best Corporation Conference Call. This call will be available for replay beginning April 21, 2 o’clock p.m. eastern standard time through 11:59 p.m. eastern standard time on April the 30th 2004. The conference id number for the replay is 665-2666, again the conference id number for the replay is 665-2666. The number to dial for the replay is 1-800-642-1687. Thank you, you may now disconnect.