ArcBest Corp (ARCB) 2009 Q1 法說會逐字稿

Good morning. My name is Connie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Arkansas Best Corporation first quarter 2009 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. David Humphrey, Director of Investor Relations, you may begin your conference.

Welcome to the Arkansas Best Corporation first quarter 2009 earnings conference call. We'll have a short discussion of the first quarter results, then we'll open up for a question-and-answer period.

Our presentation this morning will be done by Mr. Robert A. Davidson, President and Chief Executive Officer of Arkansas Best Corporation; and Miss Judy R. McReynolds, Senior Vice President, Chief Financial Officer and Treasurer of Arkansas Best Corporation.

We thank you for joining us today. In order 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 section of the Company's earnings press release and the Company's most recent SEC public filings.

We will now begin with Ms. McReynolds.

Thank you for joining us this morning. Once again, I must report to you quarterly results for our Company that are obviously disappointing. Despite our significant steps to reduce expenses, the deep and extended recession continues to take a significant toll on our Company.

In each month of the first quarter, we took actions to adjust our labor and equipment in response to the reduced business levels, while maintaining our service levels. We are evaluating additional steps that could be taken. Later, Bob will give his thoughts and perspective on our recent performance, but now I'll cover the details of our results for the first quarter of 2009.

Our first quarter 2009 revenue was $340 million, representing a decrease of about 23% per day compared to last year. Our net loss for the first quarter was $0.73 a share compared to net income of $0.34 a share last year.

There were several items of note that occurred in the first quarter and are reflected in our results. These items include -- market losses on cash surrender value of executive life insurance policies of $0.04 a share. We experienced an increase in the value of these policies for the month of March, and we hope that positive trend continues. The first quarter of 2008 was negatively impacted by market losses of $0.02 a share.

Our quarterly results were reduced by $0.15 a share as a result of ABF's RPM initiative. Last year's first quarter results were impacted by $0.10 a share.

As I discussed with you last quarter, we will experience an $11 million increase in our non-union pension plan expense this year, as a result of having to amortize 2008 stock market losses. For the first quarter, our expense increased $2.7 million or $0.07 a share over last year's same quarter. This plan was closed to new participants beginning on January 1, 2006. At that point, we began providing benefits to new participants under a defined contribution plan.

On a positive note, we continued our trend of lower Workers' Compensation costs. Our first quarter 2009 results were improved by $2.5 million or $0.06 a share when compared to the first quarter of 2008. This improvement includes the effect of our annual development factors update as well as positive claims experienced for the quarter.

And then finally, the costs associated with our strategic review reduced our first quarter results by $0.05 a share. Our effective tax rate for the quarter was 37.6%, which represents the actual rate for the quarter as opposed to the projected rate for the full year. We expect the full year rate to be higher, but it depends on the pretax income levels we experience for the rest of the year.

In the first quarter, Arkansas Best cash and short-term investments were reduced by $30 million. This reduction includes the voluntary tax-deductible contribution of $15.5 million to our non-union pension plan; a $4 million quarterly dividend payment; and a $6.5 million reduction in bank float. The full details of our GAAP cash flow are included in our earnings press release.

Our financial position remains strong, and it puts us in both an adaptable and flexible position to deal with this economy and the LTL marketplace. Our cash and short-term investments, which remain in government securities funds and FDIC-insured Certificates of Deposit, totaled $209 million on April 15.

Moving on to ABF results for the quarter -- ABF reported first quarter revenues of $323 million, a per-day decrease of 23% compared to last year. ABF tonnage declined 15.7% per day during the quarter. So far this month, our April tonnage trend is -- its tonnage is trending down about the same percentage.

ABF's fourth quarter operating ratio was a 108.3 compared to a 97 in the first quarter of 2008. RPM added 1.9 points to our first quarter operating ratio. RPM increased last year's first quarter OR by 1 point.

And now I'll turn it over to Bob for his thoughts about our quarter.

Thank you, Judy, and good morning, everyone. During the quarter, ABF continued to reduce operating expense in response to available business levels, and those steps have been material. However, obviously, the cuts in overall expenses weren't commensurate with the declines in revenue.

Despite diligent efforts to scale ABF's operations, two factors caused the increase in operating ratio. We've been committed to maintaining a high level of customer service, including in our new regional initiative. And this requires us to run schedule-driven dispatches, regardless of lower freight levels. We're serious about maintaining reliable transit times despite the lower tonnage levels.

In addition, an industry-wide decline in tonnage over an extended 2.5 year period has resulted in a competitive pricing environment that has made it difficult to recover the cost of our services. ABF's tonnage is at levels we experienced nearly 20 years ago. As a result, we've made some difficult decisions to dramatically reduce our work force and our equipment capacity.

Last year, about the middle of the year, we were saying that tonnage declines had stabilized after a drop in October of 2006. However, beginning in the fall of 2008, the industry saw another steep decline in business. And this has continued through the first quarter, requiring us to make additional reductions.

In the first quarter of '09, we reduced our employee count by an additional 625 people. Since the fourth quarter of 2006, when our freight recession first began, ABF has reduced its labor force by 23%. None of these decisions is easy or pleasant, and their impact has been felt throughout our Company. However, we understand that they are essential to ensure that we successfully navigate through this very difficult period.

The additional first quarter reductions of our equipment fleet resulted in overall tractor reduction of 20% and trailer reductions of 11%. These cost-cutting actions are in addition to many others that we've taken throughout our Company since 2006, many of which we discussed last quarter.

Success in our cyclical business has always depended on the ability to properly align network resources with available business levels. And that tenet is especially true during times like this. We're continuing to evaluate ABF's freight handling network to identify excess costs and opportunities to improve efficiencies.

For example, we expect to implement a major change in our linehaul network next month, based on current business volumes and changes in the regulatory environment.

As Judy mentioned, ABF's first quarter tonnage per day decreased by 15.7% compared to the same period last year. The tonnage declines in each month of the quarter were fairly consistent, with January and March being slightly worse than February.

As illustrated by the figures I shared earlier, our analysis indicates that we've done a pretty good job of decreasing total direct employees and equipment fleet in step with the rate of business decline. However, there are fixed costs that are spread over a smaller revenue base and, in addition, we've resisted some steps that have been embraced by our competitors.

While we have frozen management sales and professional salaries, we have not instituted Company-wide wage and salary reductions. At the same time, we focused on preserving the high level of attention to customer needs and requirements for which ABF has always been known.

At times, that commitment to service causes us to make choices that result in more and more of ABF's remaining resources being fixed in the short-term. But as you know, we are long-term focused. In combination with lower revenue because of substantially less freight in our network, this has caused our profitability to suffer.

One of ABF's greatest challenges in the current operating environment is the difficulty in obtaining sufficient base rate increases that are necessary to cover rising operating costs. ABF's total billed revenue per hundredweight in the first quarter decreased by 9.4%, primarily due to the overall reduction of fuel surcharge, which has declined by about two-thirds since its peak in July of 2008.

In a normal economic environment, this steep reduction in what our customers pay for fuel-related costs would improve ABF's ability to get needed base rate increases. Industry pricing remains very competitive and has substantially limited our pricing effectiveness. As a result, we've continued to fall short of covering normal annual cost increases with adequate yield improvements.

In the meantime, until business begins to grow and industry pricing improves, ABF will focus on differentiating ourselves in seeking out current and prospective customers who value the positives of using a carrier that's been recognized over and over again as best-in-class for safety, security, reliability, cargo care, and sales professionalism.

As is always the case, even in a competitive environment like today, there will be current and prospective customers with whom ABF cannot do business, due to unacceptable levels of profitability.

Despite the disappointing financial results, there continue to be good things happening throughout our Company, and it helps to identify bright spots along the way, in order to highlight the hard work and commitment to the principles of the quality process that are displayed every day by ABF's dedicated employees. These bright spots also validate the fact that our Company is fundamentally sound and is executing quite well, despite the poor economic environment.

As we previously announced back in March, Arkansas Best was included on the 2009 list of the World's Most Admired Companies, as published by Fortune magazine. Arkansas Best was the highest ranking LTL motor carrier among the most-admired trucking companies.

ABF followed up last year's record-setting level of cargo care -- that was the best in the Company's history -- with a slightly lower cargo claims ratio in the first quarter of 2009. As Judy mentioned, Workers' Compensation costs improved in the first quarter, and these costs, combined with third-party casualty claims, were below recent 10-year averages as a percent of revenue.

Changes made over the last few quarters to ABF's linehaul freight network have resulted in improved efficiencies, quicker movement of shipments throughout the network, and the reduction in the ratio of empty miles. The network changes related to our regional service offering has resulted in a service improvement of at least 1 day in over 40% of ABF lanes. Additional linehaul network changes will soon be implemented that will benefit customers through faster transit times, while at the same time, lowering ABF's cost.

In the midst of one of the most challenging times in our industry's history, these examples of excellence throughout our Company highlight ABF's execution of a standard of service that is second to none in our industry.

Finally, this month, we will be concluding our work on a formal strategic plan for our future. This process was designed to identify and validate the core strengths of our Company and our management team, while directing us toward potential opportunities for corporate growth and diversity apart from ABF. The process has focused on avenues that can increase shareholder value by capitalizing on our Company's expertise, and that can provide profitable growth for Arkansas Best.

In the future, we will carefully consider our options, while recognizing the enviable stability unique in our industry, that our balance sheet affords us during the current economic environment. We've always been a conservative company with a focus on prudent evolution, and we will remain so during this process. As with our ongoing commitment to ABF's regional initiative, our goal is to pursue a path that's good for our customers, our employees, and our shareholders.

I think we're now ready to take some questions.

Connie, I think we're ready for the Q&A. I just want to remind everybody that we're going to try to limit everybody to no more than five minutes on the Q&A.

(Operator Instructions). Edward Wolfe.

Hey, guys, it's actually Tim Denoyer in for Ed. How's it going? (multiple speakers)

Just wanted to -- wondered if you could expand a little bit on the upcoming change to the linehaul network coming in a few weeks. Is that going to be removing terminals? Is there -- are there going to be fixed costs coming out as a part of that?

Mostly what we'll be changing will be relay points within the network. We won't be changing the location of any customer service facilities, but taking advantage of the hours of service, changes which, although they're in perpetual litigation, look like that they will be in place for the longer term. And so we're going to take advantage of those, and allow us to mostly change driver domicile and relay points.

There's quite a few points involved. It's not every relay point, but it's significant enough for us to mention it.

And on the cash balance that you mentioned of $209 million as of April 15, can you tell us what it was that increased between April 15 and the end of the quarter? Was it taxes?

Yes, Tim. We actually received a tax refund that was associated with our pension contributions that we made at the end of last year and in the first quarter.

Got you. And are there any other -- any additional pension contributions expected for the year?

We could make some, probably up to anywhere from none to about 10 million is what we're considering. We don't have to make any contributions; what we make would be voluntary, but we'll consider that as we go throughout the year.

Great, good. And last question -- can you give us, like, the trend of tonnage during the quarter by month?

Well, I think, there wasn't much variability to it. We had a little bit worse of a trend in January and in March, a little bit better trend in February. But really not much variability in the year-over-year trend.

Got you. So, down about 16 in January and March, and then 15 in February, roughly?

That's -- roughly.

Okay, thank you.

Tom Wadewitz, JPMorgan.

Let's see. So, one -- I guess one follow-up on one of the first questions you had. So you talked about that change in relay points. How much cost -- what's the magnitude of annual cost savings you can see from a change like that? Is it a couple million dollars? Or what's the magnitude of that?

Total costs are somewhere at $1 million or less. And I've got to tell you, there's a pretty quick payback for that cost.

Okay. And that's $1 million on an annual basis, right?

Well, it's a one-time, $1 million cost, and then the savings begin immediately after that. There's a pretty big payback period -- a quick payback period.

Okay, so you spend $1 million to do it, and then you get something greater than $1 million in the first year, I guess?

Yes.

Okay. Oh, let's see. What did you see in -- I mean, it sounds like the tonnage trend didn't change a lot, but in terms of competitive dynamic, did you see any impact as the Roadway and Yellow Terminal integration was taking place in March? Because they talked about seeing some freight move away, some level of meaningful diversion in March. And I'm just wondering if you saw signs of that? It doesn't sound like it showed up in the tonnage, but what are your thoughts on competitive dynamic and impact from the YRC integration?

We certainly saw an increase in customer inquiries during March.

Do you think that that's -- that you'll see some business come over, then, in April? Or you just saw inquiries but you didn't see much conversion?

Well, we did see business, but again, there are a lot of moving parts. You've got what's happening in a macro sense, and it obviously netted out to not much change.

Right. Right, okay. What about the pricing dynamic? I mean, you talked about the yield reduction being primarily driven by fuel. Is there a point or two of impact or more than that from lower-priced contributing to the decline in revenue per hundredweight?

Contrary to what we heard this morning, we actually had a slight improvement in yield, net of fuel surcharge. It wasn't much, but it was something positive.

In terms of the overall dynamic, it's certainly no better than it's been over the last year. And it's still pretty competitive out there, but we saw a slight positive in our overall. And we saw some improvement in our contract and deferred business that rolled over in the quarter. (multiple speakers) But we did not -- we didn't get enough to cover what we expect our annual cost increases to be.

So the reduction in surcharge was actually greater than the 9.4% decline? And that was offset a little bit by positive price?

That's true.

Okay. What about second quarter? Do you think that will change? Is there -- as there's been a lot of bidding activity, is that something where the pricing steps down in second quarter, as you begin hauling on new contract rates? Or do you think that's unlikely really to be -- to materialize in the second quarter?

Tom, I couldn't speculate on what will happen during the quarter.

But on contracts you signed in first quarter, you wouldn't -- that wouldn't tell you that pricing is going to step down in second?

Well, I mean, we will get some benefit in the second quarter from the deals that we did in the first quarter, but I don't know what else is going to happen from an overall standpoint.

Right. Okay. One last one and I'll pass it along to someone else. What do you think needs to take place for a turn in the operating ratio? Obviously, there's some seasonality when you look at second quarter, third quarter versus the first quarter, but at 108, it's kind of hard to see a big enough improvement where you start making money at an operating level within the next few quarters.

So, is that -- I mean, do you think we're just stuck in a loss-making position for a number of quarters looking out? Or do you think there is some dynamics you could see that would play in your favor, that might actually bring you back below 100 OR in the next couple quarters?

Well, we either need to see an increase in profitable business or a firming up in the pricing environment. You can speculate as well as I can on what events might occur that will allow that to happen.

Okay.

Appreciate it, Tom. Thanks.

Justin Yagerman, Wachovia.

(multiple speakers) I wanted to just a little bit -- I think Tom was trying to get at, on the linehaul changes, you guys mentioned that you're going to have $1 million in costs associated with that. But in terms of potential savings expected, you said it's a short payback period. So, obviously, in excess of $1 million, hopefully, in short order. But do you have any way to quantify what that potential is?

Yes, we do, but I don't think I'd disclose that on the call. I would just tell you that it's one of those win-win-win deals where it'll improve network velocity. It will reduce overall costs for the year and allow us to provide more reliable service.

Okay. And how much variability is there in terms of how much you can get out of that, depending on density that you're running on those lanes?

You know, I don't think that that's -- it's susceptible to that. I mean, you know, we've modeled it at the current tonnage levels.

Okay.

If we have improvement in tonnage, the payback will come even sooner.

Got it. And then just thinking conceptually about the tonnage situation and where you guys are relative to the share that one of your large competitors seems to be shedding right now, is the trouble that -- you pointed to being able to keep your pricing net of fuel positive on a year-over-year basis. I mean, is the problem to some extent that you guys are pricing yourselves out of the market? And I would assume that if you are, that that's a purposeful strategy to keep profitable freight in the network?

Well, we have walked away from some business, even in this environment. In this environment, more of your costs become fixed, as your network remains static and the tonnage falls. But even at those levels, there's some business that you're better off without than with. And we make the conscious decision with regard to that in profitable business.

Got it. From a tonnage standpoint, it sounds like things were kind of flat in terms of the sequential decline that you saw in the quarter -- a little bit of variability, with February being a little better and March getting a little bit back towards where January levels were. And then you said that things stayed about the same so far in April.

Is this a flattening trend that we're seeing here? And is there anything that gets you to think that things may be getting a little bit better? Are there any signs of a bottoming here? Or on the other side, is there anything that, as you look through and think about your customer conversations throughout this bid season, that gets you a little bit more pessimistic in the next month or two?

You know, Justin, last year I was using words like rocking along the bottom, not getting any better but not getting any worse. And then when we got to the fall, things fell off another 15 plus percent. So, I'm really reluctant to say that we're rocking along the bottom. But it is, at this point, and for all of 2009, hasn't been getting better, hasn't been getting worse.

Your crystal ball isn't working, either?

Exactly. You know, you start to hear people talk about favorable inventory to sales ratios, but that may or may not be a positive sign. But other than that, I don't have any bright spot in my crystal ball.

Got it. When you think about all the different levers that you can pull, you mentioned that you haven't gone to your rank and file yet and asked for pay reductions, like some of your -- or at least one of your competitors has. Is that something you start to think about, if this thing gets prolonged and we continue into the next couple of quarters with similar type of tonnage declines?

You know, when you look at what makes a successful trucking company, in fact, what makes a successful business, it's all about people. And we are absolutely, 100% certain that we have the best team in the LTL industry. I mean, and that's not just my opinion.

You can look at the Workers' Comp numbers; the safety statistics, which are just remarkable and getting better; the cargo claims numbers; this team is just executing well. And our strong bias is to maintain the team and just keep working hard.

And so, that would be a hard step for us to do. If we -- in this kind of environment, sometimes you do things that you don't really want to do, but that would be one of the levers that we would not pull immediately.

Got it. In the quarter, Judy, in terms of severance associated with the layoffs, is there anything -- you may have mentioned or not -- is there anything one-time here that we should be thinking about?

No, there's nothing that's material. The additional headcount reductions we have done primarily have been in -- with our labor force and our contract provides for how that works, and there is no severance associated with that.

Got it. And then on the advisory side, you guys have -- it sounds like you're close to being done. Any color on what kind of company those guys are steering you towards, in terms of what they think is a good fit for your model? And then is there any more costs that we should be expecting associated with that in the second quarter?

Well, we, as you would expect, would stay close to our current business. So you can expect us to be active in transportation, distribution or logistics. And we'll be pursuing something this year.

We'll have a small amount of expense in April. Judy might have an estimate for you.

Yes, it's probably about $700,000. And that will be the only month that we have that cost in the second quarter.

Justin, I think I'm going to cut you off.

All right.

Jason Seidl, Dahlman Rose.

I apologize if I ask anything that's been repeated and unfortunately, there's kind of an overlap in one of the other calls.

Just kind of piggyback on Justin's question, is there a preference for asset versus non-asset in terms of any potential acquisitions you guys might do? Or are you just looking for something that will incrementally add to your transportation portfolio?

Well, we're looking for good businesses. And we actually have experience in managing both asset and asset [life]. So, I think our strong preference would be for places where we could add shareholder value. And I think it's possible to do that in either venue.

Okay. And I'm not sure, like you said, if this has been covered, but is the percentage of freight that you're putting on the railroads right now versus the prior year -- did you cover that?

We didn't, but it's actually really similar. About -- I think 10% of our miles in this year's first quarter versus 10.3 last year's first quarter.

And what are you experiencing in terms of pricing on the rail side? Has it been going up? Or has it been relatively flat?

We've seen some declines, but primarily attributed to fuel surcharges.

Okay. And the last question -- just more in a general basis, in terms of your contracts rolling over percentages per quarter -- are there any large differentials? Or is it more of an even spill?

Well, we had about a 1.3% increase in our contracts and deferred pricing agreements that rolled over in the first quarter. And that's a slightly worse figure than what we saw in both the third and fourth quarters of last year.

In terms of modality, the fourth quarter is the most, the first quarter is the second-most. And then the second and third quarter are after that.

Okay, fair enough. Listen, I appreciate the time as always.

Jon Langenfeld, Baird.

On that contract side, how easy is it for you to tell how much of your business is going on the contract versus spot market rates for a given customer? Because I'm assuming some customers probably do both on various occasions.

We know exactly how much freight for each customer is under what pricing mechanism.

Is it safe to say that if I'm a customer, sometimes I may take advantage of spot market quotes for ABFS, and other times I might be running under my contractual rate?

Yes, that's common.

Okay. So I guess what I'm wondering is -- has the percentage of business that's not running on contract, has that changed meaningfully here over the last 12 months?

Not that I've noticed.

Okay. So, it's been no change there. All right. And then on the capacity side, any thoughts on infrastructure capacity, in terms of taking down door capacity -- or maybe asked differently, what type of environment would it take for you to consider reducing your footprint?

Well, the number of terminals that we have is always going to be something quite similar to what we have. In fact, you can look at other carriers that serve North America, like ABF, and you'll see that all of us have pretty much the same footprint.

The number of doors is certainly a factor, and even in this environment, we have door pressure at some facilities where we're adding to those facilities. But by and large, terminal capacity, brick and mortar, is not a large portion of our expense. And you tend to secure that capacity -- you add to facilities, you buy new facilities, when they're available and not especially when you need them, because it's so difficult to build terminals and so difficult to expand them.

So, in terms of the things that we look at on a day-to-day basis, even in an environment like this, the brick and mortar is not high on the list.

But I mean, are there regions -- if we were in a long, drawn-out downturn here, multiple years at these type of volume levels, no recovery -- I mean, are there territories that you would say, look, in this environment we can't generate an economic return. So, over a longer period, maybe we -- over a longer downturn, maybe we actually pull out of some regions, some operating units. So, it's not only just the facility costs but the operating costs that go with it.

You know, you might do that if you operated a consumer business. If you were selling widgets, you may decide, okay, the Northwest is tough and I'm just not going to sell widgets in the Northwest.

But a trucking company is a network. And even if business were down in the Northwest -- and it's not, but -- it's not excessively -- but if business were weak in that area, you still have customers in the Southeast and the Northeast and the Midwest who count on deliveries in those locations. So, you have to look at the company as a network and not on a regional basis.

And I'll say again, too, that when you're in it for the long-term, if you have a loss in a facility for a whole year, but you think there's a place you've got to be, you stay there.

Yes, I know, and I can appreciate that. I'm just thinking out over the longer term, a three to five-year period where you just get modest GDP growth at best and you don't get back to the place where you can generate an economic return that you've targeted. I mean, how long do you go before you make more drastic decisions that address the footprint like that?

Well, we always are looking at individual markets and saying, how can we more effectively serve the market? For instance, we used to have three facilities in the Atlanta area. Now we serve it with one. And we do so pretty effectively. It actually allows you to make more direct schedules and improve the transit times.

But the idea of pulling out of a market, if you're a nationwide carrier, is just kind of a non-starter. It's like -- I can see the sales brochures now -- ABF is a nationwide carrier except for Montana, Idaho, and South Dakota. You know that -- it just doesn't work.

Okay, yes. I appreciate that. And then the last question I had -- just in terms of the strategic analysis that you're going through. Has the consideration been made as well to say, look, we have this cash balance? The next several years is uncertain, so maybe we should sit on this cash and maintain our strong liquidity in the near-term?

Absolutely. Having our balance sheet allows us to engage in some of the long-term non-panic-driven thinking that you might otherwise have to do. And so, our ability to maintain customer service; our ability to actually expand our regional initiative in the middle of this downturn is driven by the security and stability from our balance sheet. And it's something that we don't take lightly.

At the same time, I think we all recognize that over the longer term, the capital structure that we have is not an optimal capital structure. And the noble case is always to return the funds to the shareholders. But if we can find businesses that can increase shareholder return, we're going to look very seriously at those.

But at the same time, I think you know ABF well enough to know that we are very careful and prudent, and we're conscious of the current environment and the advantages of our balance sheet, and if it allows us to take advantage of other potential opportunities in this environment.

So, we're not going to do anything drastic. And we're going to keep in mind that we do need the stability of our balance sheet as we look at the other opportunities.

Thank you.

David Ross, Stifel Nicolaus.

First question is on the volume decline. If you could, I guess, give a little color as to whether that was due more to loss of customers over pricing or just existing customers shipping that much less?

We've actually done some fairly discrete analysis in that. We have lost some customers entirely, and we have gained some brand-new customers. And the tonnage losses for those two almost exactly balance out.

Where our tonnage losses come are from declines, from existing customers that we've retained; and the surveying that we've done suggests that our customers are just shipping and receiving less.

Okay. And then on the pricing side, can you comment a little bit on mix changes as well? Kind of what happened with the length of haul in the quarter and average commodity class?

Yes, Judy's got the numbers in front of her.

Let's see. On length of haul, Dave, we were down 1.4%.

To what, 1,200 and --?

Oh, okay. Let me give you the figures. This year, it was 1,119 versus last year 1,135.

Okay, thanks.

Okay. And you said commodity density?

Yes, please.

Our commodity density increased 1%. It's 10.32 last year to 10.42 this year.

Okay. And then on the CapEx, has there been any adjustments to the 2009 forecast, due to the lower volumes and maybe extending the average fleet age?

No, not at this point. I mean, we really had already anticipated a little bit of that. Our levels that we have disclosed are lower than kind of a normal replacement cycle in a normal year.

We're expecting to spend somewhere in the $40 million to $50 million range. And all of that would be replacement. There's not very much in that number for real estate and other additions. It would be mostly tractors and trailers.

The other profile characteristic you mentioned, the total weight per shipment was actually up about 0.5%. And all three of those factors would have tend to have depressed the nominal revenue per hundredweight. So, the true pricing was perhaps a little better than what the nominal would have said.

Okay, thanks. Also, last question on the Central State's pension plan. It's, I guess, most talked about, most woefully underfunded of the multi-employer plans in which you participate. Could you comment, I guess, on where the plan stands and any discussions to cut benefits to employees to get closer to funded status? Because I don't see how employers can possibly contribute enough over time to restore the funded status of the plan.

Well, we have some information on their assets. I believe there was a $9.8 billion loss in assets during 2008, down to about $17 billion or so of assets. Don't have an update yet on the obligation side, because I guess it's not required; maybe we'll receive that at the end of April.

We have really just focused on the fact that we have our contract already determined through 2013, and our hourly rates are, as we've determined, under that contract, I'm not aware of -- their specific discussions, from a trustee level on any benefit reductions. I know that they have disclosed adjustable benefits that could be an issue, if they need them to be, because they're in the red zone.

What I am aware of is that they would be looking at legislative and government assistance to help them solve their problems as they have in the past. And we don't have any more specific details than that.

Thank you very much.

Ken Hoexter, Banc of America.

I just want to follow up on a question. Sounded like you were getting toward this -- on the fixed cost status of your network, just on how much do you focus on growing out the regional business at this time, which has those fixed service schedules, versus pulling back on that a bit in certain regions that just don't have the density to justify those returns yet? I mean, can you walk through your thought on that, especially in this developing market?

Well, in terms of growing out the network, we're pretty much everywhere we want to be except for a few places in the West Coast. And we put that on hold until we see some life in the economy; but that's not a very big deal.

In terms of the rest of the country, we are providing the service. And as you know, from listening to us over an extended period of time, we think that's not a luxury. We think it's critical to offer nationwide coverage with competitive transit times, not only across country but the next state over. And so we're going to keep the footprint as it is and continue to provide service.

You don't break out what is the regional growth and longhaul growth any more, do you? Do you still look at it that way or --?

We do disclose what percent of our tonnage is less than 1,000 miles.

It was about 58.4%, I think, in the first quarter; not much change from last year's first quarter. And I can just tell you kind of qualitatively, the trend that we had was slightly better in the regional markets versus just the total.

Ken Hoexter Okay.

And our length of haul did fall again -- albeit slightly.

How much did it fall?

1.4%.

Okay. And just a technical thing -- in Other Loss and Eliminations, you had a $2 million downtick there. What is that related to?

That's related to our strategic consulting fees, primarily.

Oh, for what you're going to do with the cash?

Yes. It's kind of a -- it's more than that, but it's just the total review that we're doing of our company strategy.

(multiple speakers) Does that include the long -- I'm sorry. Go ahead, Bob.

For how we're going to enhance shareholder value, Ken.

Sorry -- but well put. Does that include the things you were talking about with the long-haul reshaping?

Oh, no. This is paid to an outside third party for consulting services.

Okay. I understand.

Yes, the network changes will be shown in just operating results. I mean, they will be buried in mostly salaries and wages.

Let me come back and do a bigger picture thing. On the truckload industry, we can easily see capacity leaving with a lot of mom-and-pop bankruptcies. What can you do in the LTL market, now that you kind of have some of these companies maybe getting cash that may be in different markets they wouldn't have had access to, because they're not letting them go under, in some cases?

And that can be for various carriers. What has to happen in the LTL sector now from your point of view? Do we just see this pricing competition continuing to get as sizable as it is to force the issue? Or what else can happen to pullout capacity? Because it sounds like from what you're saying, Bob, you can't get rid of capacity with that and keeping the service levels.

So what is that next phase? Do we have to just continue to watch the pricing yet continue to degradate?

Well, as I indicated earlier, if things get better whenever we get more tonnage, substantially more tonnage, or whenever the pricing environment stabilizes. As you're suggesting, those two things do go hand-in-hand.

Okay. And how much -- can you put a number on that, how much excess capacity you see in the market in your -- in the LTL sector?

Well, it's really tricky to quantify that, because our ability to add and subtract capacity almost at will is -- it means that there is almost never a time when you couldn't take an additional shipment or an additional load.

You can look at our company over the last -- since 2006, and you see that there's 25% that's been taken out. We could restore that fairly easily. There's just so many levers on the upside where you could increase the capacity.

So I'd say that, in terms of the fixed brick and mortar, there's ability to handle a lot of more shipments through that network. We've got a substantial ability to add labor, to add equipment, to use more rail, to use more third-parties, and there's just a whole lot of capacity. But even in a boom time like 2004, that's true as well.

Okay, great. Thanks a lot for the time. Appreciate it.

Tom Albrecht, Stephens, Inc.

I had a couple of different questions here. And I know, again, in this environment, it's a little bit tricky, but -- in recent years, your second quarter tonnage has averaged about 6% more tonnage than the first quarter. Is there any reason to believe that the second quarter tonnage, just seasonally, shouldn't be a bit higher than the first quarter, even if it's still painful year-over-year?

Well, what we've disclosed is the year-over-year April month today trending about like the first quarter. And so, if you do have that seasonal variation, you would expect to continue about the same pace. But all we know is what we've seen so far in April.

Okay. And then, Judy, on Arkansas Best Corporation income statement, that other net, I assume that the bulk of that negativity is related to the cash value surrender -- decline?

Yes, it is. It was about $1 million in this year's quarter and then about $600,000 in last year's first quarter, negative. So not as much of a year-over-year effect. But nevertheless, it was there. We actually did see a positive in March on this, which -- that was the first in a while.

Well, good. I guess that makes sense, given the market. On the other income statement there where you've got Other Revenues and Eliminations, the $16 million of revenues. You had $18.3 million of expenses. I'm a little surprised that you posted a $1.8 million loss there. That's usually plus or minus $200,000, $300,000. Was the business that bad at FleetNet and other things or what's going on?

Oh, no, that's our strategic consulting fees that we talked about in the fourth quarter. We just have three months of them.

Well, no, I'm not talking about a line -- I'm talking about where you've got Other Revenues and Eliminations and then Other Expenses and Eliminations was $18 million. So that net of $16.5 million minus $18.3 million, that's a $1.8 million.

Yes, that's where that is.

Oh, that's in that number.

It's in the expense side of it.

Okay. I thought it was -- I thought you were referring to that other $2 million figure -- $2.164 million -- okay.

No, that's where it is, that $1.758 million? Is that what you're talking about, loss?

Right.

Yes, that's where that is. It's almost all of it.

Okay. All right, that's helpful. And then what about the issue of revisiting potential wage cuts, in light of how bad the market is? I know we've discussed that earlier in the year as a result of one of your competitors, but what are your latest thoughts there?

You know, I think I responded to that a few minutes ago. You may not have been on the call, but my comments were along the line of the fact that we've got the best-in-class team in the industry. And even in this environment, I'm not inclined to disturb our greatest asset, at least at the current time.

Okay, I guess I wasn't as clear on that. And then Judy, let me just ask a couple of factual questions I like to get every quarter.

You've given length of haul and rail, but -- bear with me just a second -- let's see, cargo claims, 0.66. How about Workers' Comp? How did you fare this quarter?

Well, it was -- I talked about that -- it was $2.5 million better on my comments in the script for the call. (multiple speakers) And that was better.

We did have some other factors that offset that. In the pension area, we've got an increase of -- that's going to be there for the year of about $11 million. And so for the quarter, that was a minus $2.7 million. And so in the bottom-line numbers, you don't really see much of a change kind of in that salaries, wages, and fringe lines because those two are netting each other.

You know, if you think about how counterintuitive it is to see actual lower Workers' Compensation expense in this kind of environment -- it's just remarkable, I think. It just shows the quality of the ABF team and how that, even in this kind of environment, everybody is pulling on the same end of the rope.

You're basically saying when you're not as busy, people's sharpness might decline, which might lead to more injuries. Is that what you're sort of saying?

I'm just saying that in other industries and in other times, in a period when you're having layoffs, you would see an increase in Workers' Compensation expense. But instead, we're beating our 10-year averages.

And again, I'll point to the safety statistics and loss and damage statistics. It's just remarkable. If you're looking for something we haven't talked about, we've had a slight increase in our days outstanding on our receivables, but nothing like you would expect in this kind of environment.

And it's really a credit to our collections team and to the folks who rate the freight bills and bill the freight bills and produce a correct invoice. And then our team is able to collect it. I think I can just point to lots of those areas of the Company that are executing very, very well, even in a very tough environment. And as you can tell, I'm proud of all of them.

Thanks a lot, Tom.

Thank you.

Edward Wolfe, Wolfe Research.

I know you spoke with Tim before, I'm sorry, I was on another call. (multiple speakers)

So, the way things are going in the market, I think it's clearly a real possibility, if not probability, that if this goes on for too much, YRCW could not exist any more. And that would be a great scenario for you guys in a lot of ways.

Can you talk about what that would mean, though, for the multi-employer pension, as you understand it now?

I think, again, just to focus on the fact that we have our agreed-to contract terms, and that doesn't change for us until 2013. We're obviously going to renegotiate at that time, but I think that would be one of a couple of issues that the fund is facing.

The fund, like many other pension plans, is facing market loss issues. They are obviously not alone in that, but they do have a sizable issue there to face. And our understanding is that they're looking at legislative and government solutions, like they did back in 2002 when they had a similar issue.

And I think the YRC situation would add another element to that issue, but the solutions are probably going to be worked through in the same way.

In a very general sense, the health of that fund and other funds is more driven by market performance rather than participating carrier contributions. The market performance is much more important.

We always hear about having to support orphans -- trucking companies that were out of business. If 23% of the market went out, though, I would think that would be a major part of that, no?

Well, it certainly would, but it's something that wouldn't happen immediately, either. Those people, while they would be orphans, would typically find other employment.

Okay. So, as you understand it, though, the contingent liability would go up, but there would be no impact till 2013 other than that?

Well, I mean, that's -- that would be our understanding, based on the contracts that we're operating under. Again, the amounts we pay in are based on our hours worked and really nothing else.

Yes. No, understood. All right, thank you.

Neal Deaton, Stephens.

(multiple speakers) Just a quick maintenance question or two. In past quarters, you provided the percentage change in pounds per hour year-over-year, kind of your linehaul productivity metric, and then dock, street, and yard. Can we get those from you, please?

Pounds per hour was basically flat. And bills per hour the same -- down 0.5%.

Okay. And just one curiosity question. Are you having other LTL carriers that are struggling? We know of a number out there. Obviously, there's a lot of excess capacity. Are you having any of them approach you about essentially purchasing them?

We would never disclose that.

Okay. Well, I thought I would try. Okay, that's all I've got. Thanks.

Thanks, Neal.

(Operator Instructions).

Connie, I think we've reached the end of the hour. Are there any other questions that you have?

Yes. We have a follow-up from Justin Yagerman.

Okay, we'll do one more. This will be the last question.

Okay.

Welcome back, Justin.

Hey, appreciate it. Thanks, guys. Wanted to see if there was any -- you talked about times through the quarter. You didn't mention a pricing trend through the quarter. Is there anything you can share with us in terms of January, February, March variability? And then I guess where you are in terms of pricing as of April?

We don't really have granularity on that kind of monthly detail. I can tell you, though, that it was certainly no better year-to-date in '09 than it was last year. It's pretty tough out there.

Okay. And then I just -- on your discussion on companies that you would consider, you mentioned asset and non-asset. In the past, I felt like maybe you guys had shied away from the thought of buying an LTL or buying a truckload company.

And I just wanted to -- I was curious if your thoughts had changed on that. And as values obviously come in and you guys have experience running those kinds of networks, if that's something that you're now considering.

Well, we're considering investments in the broad area of transportation, distribution, and logistics. And that's as narrow as I'd like to define it.

Fair enough. All right. Appreciate the time, guys. Thanks for taking the call.

Thank you and goodbye to everyone.

This concludes today's conference call. You may now disconnect.