ArcBest Corp (ARCB) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Arkansas Best Corporation first-quarter 2011 conference call.

During the presentation, all participants will be listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded Monday, April 25, 2011. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations and Corporate Communications. Please go ahead, sir.

Welcome to the Arkansas Best Corporation's first-quarter 2011 earnings conference call. We will have a short discussion of the first-quarter results and then we will open up for a question-and-answer period.

Our presentation morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of Arkansas Best Corporation; Mr. Michael E. Newcity, Vice President and Chief Financial Officer 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 Mr. Newcity.

Thank you for joining us this morning. During the first quarter, our Company experienced considerable revenue and tonnage growth resulting from a recovering economy and a more competitive LTL market.

Though we improved our operating performance compared to last year's first quarter, we did not return our Company to profitability. Despite ABF making some progress in addressing inadequate pricing across its broad base of customers, our yields are not currently sufficient to cover all of our cost or to produce a sustained level of profit.

Customer fuel surcharge programs at ABF that were capped or below standard levels began to have more of an impact on our margin during the first-quarter period of continually rising diesel fuel costs. As a result, we are more aggressively addressing inadequate pricing in an effort to better match individual customer revenues with the high level of service and superior value that ABF provides.

Later, Judy will give her thoughts and perspective on our recent performance and the factors that are affecting it. But now I would like to cover the details of our results for the first quarter of 2011.

Our first-quarter 2011 revenues was $435 million, a per day increase of 19% over last year's quarter revenue of $360 million. In the first quarter we lost $0.51 per share compared to a net loss of $0.85 per share last year.

We estimate that lost revenue and additional cost related to adverse weather in the first half of the quarter impacted our results by approximately $0.10 per share versus last year. As I mentioned earlier, the increase affected fuel surcharge caps and nonstandard fuel surcharge programs associated with the constant rise in diesel fuel cost throughout the quarter also affected our results by approximately $0.06 per share versus last year.

We also had some unfavorable claims experience in the first quarter that impacted results by $0.05 per share versus last year. A significant part of the costs related to the recording of a large reserve increase with respect to a single BIPD claim.

Because of the venue of the claim, we took a conservative approach in recording the amount. Also during the quarter, we continued to benefit from improvement on the cash surrender value of executive life insurance policies.

This was primarily related to a gain on life insurance claims and some improvements in market return. In total, this benefited us by $0.08 per share versus last year.

We ended the first quarter with unrestricted cash and short-term investments of $129 million which is down from end of last year. The reduction in our cash reserves is associated with the first-quarter financial results and growth of the accounts receivable balance related to increasing ABF revenues. Full details of our GAAP cash flow are included in our earnings press release.

Moving on to ABF's results for the quarter, ABF reported first-quarter revenues of $402 million compared to $333 million in the first quarter of last year. ABF tonnage increased 17.4% per day compared to last year's first quarter. ABF's first-quarter operating ratio was 105.6% compared to 110.7% in last year's first quarter.

And now I'll turn it over to Judy for her thoughts about our quarter.

Thank you, Michael, and good morning, everyone. Despite the challenges of seasonal weather issues that were more severe than in the past and low revenue yields, our Company's improved first-quarter results show the positive effects of increasing revenue and higher (technical difficulty) moving through the ABF system.

ABF's first-quarter operating ratio improved by over 5 points reflecting the benefits of more efficient use of network resources in the midst of an improving economy. ABF is maintaining a high level of service and offering new capabilities in response to customer needs.

Our sales professionals are trained to develop innovative cost effective solutions that result in improved supply-chain efficiency for our customers. However, to return our Company to profitability, we must work more diligently to restore adequate pricing levels that fully compensate us for the services we offer.

ABF's first-quarter tonnage increased by 17.4% per day versus last year. Severe weather during the first half of the quarter impacted ABF by hindering our customer pickup and delivery operations and limiting the over-the-road movement of loaded trailers.

Freight handling at ABF's large distribution centers was significantly impacted and in some cases these facilities were forced to close for several hours. Without the impact of winter storms, ABF's first-quarter tonnage would have increased by an additional 2%. Based on what we saw through the Easter weekend, we expect April tonnage to increase by nearly 15%.

On a sequential basis, January tonnage trends were above historical averages after removing the weather effects. In February and March, ABF's sequential tonnage trends were the best we've experienced in over 20 years.

So far in April our sequential trends are below historical averages but that is largely due to the strong March comparison. However, as I mentioned earlier, April's level of year-over-year tonnage increase is strong.

The positive effects of additional freight in its network allowed ABF to improve almost every productivity metric that it measures. This is a testament to our freight handling and driving professionals whose experience and training contribute to superior cargo care, base transporter shipments and a positive customer experience.

As Michael pointed out, the improvement in our first-quarter operating performance was positive but it was below our goals and expectations. Though ABF has experienced double-digit increases in business levels during the last 12 months, we continue to suffer from the effects of lower yield levels associated with the severe freight recession and the result of extreme pricing actions of the competitors that impacted industry pricing.

During the first quarter, ABF's total billed revenue per hundredweight increased by 2.3% versus last year. Although pricing increased year over year, the level of increase was reduced by a greater than normal impact of contract with fuel surcharge caps and nonstandard fuel surcharge programs. This fuel surcharge issue was more obvious toward the end of the first quarter as diesel fuel prices rose dramatically during that period.

As we reported last quarter, some of the actions we've taken in the last six months indicate that the pricing environment is improving. The retention of the general rate increase ABF implemented last October continues to be good.

Price increases on contract and deferred pricing agreements negotiated in the first quarter were 4.6%, the best they have been in six years. ABF is making steady progress in improving yields one account at a time.

However our first-quarter losses and weak yield statistics indicate that a more focused effort is needed to restore pricing and improve the profitability on a larger number of accounts. There are currently several internal reviews directed at identifying unprofitable pricing agreements, revisiting substandard and cap fuel surcharge programs on underperforming accounts and highlighting portions of business that are not paying their way.

In those cases, corrective action is being taken. When acceptable account profitability cannot be reached, we are discontinuing the customer relationship.

I am pleased to report that the positive effects of these efforts can be seen in April yield improvement. And so far in April, ABF's total billed revenue per hundredweight including fuel surcharge is up approximately 9% versus the same period last year. Excluding fuel surcharge and the effects of rate profile, that figure is up approximately 2.5%.

Earlier this month, the 8th Circuit Court heard all arguments on ABF's appeal of the dismissal of a lawsuit we filed last November against the Teamsters and various other parties. Our original lawsuit related to three modifications of our union labor agreement that were granted exclusively to the YRC companies and not to ABF or other parties to our labor contract.

ABF believes it is an equal party to the National Master Freight Agreement that establishes a single national standard for wages and other employment terms for all participating companies. At the conclusion of the April 12th appeal hearing, the court stated it expected to reach a decision by July.

According to our labor contract, ABF continues to make full contributions to multiemployer pension plans on behalf of its union employees. We are working in Washington to explain the inequity of approximately half of ABF's union pension payments going to pay the benefits of persons who never worked for ABF.

We are making progress in identifying key legislators who can help us develop fair solutions that benefit all parties affected by the current situation. Because of these efforts, this issue is being studied. No specific solution has been identified yet but its resolution continues to be a point of strong emphasis for our management team.

There are a few recent items I wanted to highlight that differentiate ABF in the marketplace and illustrate the hard work and commitment of all of our employees. In early March ABF introduced regional LTL service to the western one-third of the United States as a part of its RPM regional network.

As a result, ABF is now offering its dual system network of regional and long-haul service throughout the entire country. Based on our positive experience so far in serving the regional market, we are very excited about the additional opportunities resulting from expanding the geographic footprint of these services.

ABF's first-quarter cargo claims ratio was 0.46% of revenue, representing a good start toward another year of ABF offering superior cargo care and protection. Finally, last week ABF was named the national LTL carrier of the year by the National Shippers Strategic Transportation Council or NASSTRAC.

This is the second year in a row that ABF has received this prestigious shipper award. I had the pleasure of attending the NASSTRAC conference and receiving this award on behalf of ABF.

I was pleased to visit with customers who shared about how they count on ABF to deliver dependable consistent service and how they appreciate ABF's flexibility to their logistical needs. In conclusion, we continue to make progress in positioning our Company for a return to profitability.

We believe our efforts will be enhanced by the unique services we offer in the marketplace. We have identified the steps we need to follow and we will be purposeful in taking actions that provide a path to future success.

As the economy improves and the amount of available freight increases, ABF stands ready with the resources and innovation necessary to respond to our customers' need for reliable consistent supply chain services. As we are able to restore sufficient prices, the positive effects improved utilization of ABF's network resources will become more visible. Our customers, employees and shareholders will all benefit as we seek to profitably grow our business. Now, I think we're ready for some questions.

Susan, I think we are ready to take a few questions.

(Operator Instructions) Matt Brooklier, Piper Jaffray.

Hey, good morning, Judy and Michael. So I wanted to look at your yields for first quarter, a little bit below what we had anticipated. Also below kind of the update you have given in March, and then looking at the tonnage, that accelerating.

Just trying to figure out if the pricing on new tonnage coming into the network was kind of the main driver of that yield downside or is it just all in accounts. Maybe talk a little bit about kind of your freight mix at this point in time and what maybe is negatively impacting yields here.

Well, first of all, I want to address your comment about the comments that we have made in March. When I look back at the commentary that has occurred this quarter, we commented about the general rate increase which affects about 45% of our business and commented that that increased level was 5.9% and that occurred back in October.

That is a comment that we typically make about the general rate increase. We also talked about the increased level that we attained on the deferred pricing programs which is another piece of our business.

But a couple of other comments that we have continued to make is that we needed at least 8 to 10% increases on a broad base of our business in order to restore our Company's profitability. And that comment is still true, probably at the higher end of that is where I would say we are today.

But we have been pretty specific on that need. When you look at the quarter, the March results really are where the biggest disappointment was. I think January and February are difficult months especially when you have the severe winter weather effects that we had to really sort through how things are going.

But March we saw some things that we hadn't seen before. We commented a couple of times already in the press release and I did on my narrative earlier about the fuel surcharge effect that we saw.

We started to hit some caps because of the about 33% increase in fuel surcharge that occurred in the last six weeks of the quarter that we hadn't experienced before. Those are really contract agreements that occurred during the deepest part of the recession and just came into effect as we saw the steep increase in price.

So those are some of the factors we dealt with during the quarter. Again, the bigger part of our disappointment came in March when we didn't see some better results on our overall pricing and then this fuel surcharge cap effect.

Okay, but if I look at the yields and the progress that ABF has made from third quarter into fourth quarter, I think yields including the fuel were up about like 3.3% and as we turn the corner into first quarter, sequentially yields were flat and I understand some of the noise is this fuel cap. I'm just curious as to ex the fuel impact why it appears that you guys have taken kind of a step back in terms of your yields at this point in time.

And how should we think about your yields on a go-forward basis? I mean what percentage of your contracts did you renegotiate in first quarter, what do those increases look like and do you have a bigger or smaller percentage of contracts to re-up in second quarter?

Let me speak to your question about the sequential. When you have a general rate increase in fourth quarter versus third quarter, you are going to see a good positive improvement in yields when that occurs.

When you're looking fourth to first, you had a flip flop. You really had no increase in the first quarter which we had last year and you had the increase in fourth quarter, so that is a factor in that comparison as well.

But I will be the first to say that we were disappointed with our sequential results in pricing. I think when I look at it, we have already discussed the fuel surcharge cap effect.

But what we saw was a growth in our account base that exists with us, but it was from a less profitable portion of that. We had a greater growth rate in accounts that are less profitable for us.

And it is an account base that we have that is profitable but we had more growth there. And that is something that is difficult to control unless you do a pretty significant price-up which we are currently in the midst of right now.

The best read that I can give you on current yield is what I gave earlier on April which is that including fuel surcharge, April year over year is up about 9% and up about 2.5% if you exclude fuel surcharge and profile effects.

I think we are going to move along, okay? Thanks a lot.

Thank you, Matt.

Scott Group, Wolfe Trahan.

So, Judy, that 2.5% in April ex fuel and ex mix, can you give us that in January, February and March?

Really, we don't need to get into that level of detail. I think we have been clear about the results for the quarter.

The reason I'm giving that granularity for April is because we feel like this is a significant issue and we have a need for you and you have a need to understand where things are headed in April.

If you can't give it by month, can you at least give it for the quarter? It just feels like with yields up 2.3 gross of fuel in first quarter and fuel up give or take 30% in the quarter, it feels like the pricing net of fuel was down year over year.

It actually was down about 1% for the quarter.

And you are saying now it is up 2.5 in April?

Right, right.

That's very helpful. And when you think about -- so it's been two quarters now of growing a lot faster than the market, do you feel like you have got that right balance now through April of tonnage in pricing or do you think we're going to have to start thinking about culling business like we have seen from Conway and FedEx over the past year?

You know, I think the actions that we are currently taking are more specific to the accounts where we see profitability issues. Some of the worst culprits relate to accounts where we have fuel surcharge caps and nonstandard programs.

We're being very aggressive in going in and dealing with those accounts and that has had the effect to start with in April, but it will have even more of an effect we believe in May. But we are not unhappy necessarily with the growth level.

What we are unhappy with is the price level. And we feel like we offer very valuable services to the marketplace and we deserve to get paid well for what we do. And so we are targeting the worst culprits and asking for an increase and being very diligent about following through with that.

Okay, in terms of the fuel surcharge issue, do you think that has become -- it's a standard practice that the caps that you're talking about are -- does it feel company specific to some of the actions you have taken? And then how quickly can you correct it?

Well, I'm not really sure about the company specificity of it. I can explain a little bit about that.

We began to experience more requests for those types of programs or changes after the spike in fuel prices in the summer of 2008. And many of those accounts that we are dealing with particularly in the last six weeks of the quarter relate to agreements that were entered into during the weakest part of the recession post the spike in fuel prices in 2008.

And again, we are very unhappy about that because it ends up affecting our profitability. To the extent that we can exchange that for base rate increases, we will be happy to do that. But we have to have adequate profitability on these accounts.

And so it was an issue that to be perfectly honest I think was laying dormant and in the bigger part of the increase in the last six weeks of the quarter, it showed up. And we've dealt with many of those accounts. I think it will take us a few months to work through that. But we have contacted every one of those accounts where this is a problem.

Hey, Scott, I think we are going to move along.

Okay, thanks a lot.

Thank you, Scott.

David Ross, Stifel Nicolaus.

Yes, good morning, everyone. Quick question on the rates.

You mentioned April up 9% year over year including fuel surcharge which would be a decent step up from the last two quarters which have been essentially flat. Is there anything that April is more difficult or easy comparison versus the other months in the second quarter on the rate side?

No, it shouldn't. And, Dave, I'll correct you a little bit. We were up including fuel surcharge 2.3% in the first quarter. So it wasn't really flat in comparison to that 9 (multiple speakers)

I was talking about the sequential (multiple speakers)

Oh, oh, oh okay, well now sequentially, I'll give you that figure just to be clear. The sequential increase is about 3% in April from the month of March including fuel surcharge. Okay?

Okay.

It's the 9% is year over year for April.

Okay. And then as you look at the business that came on board, was there a disproportionate amount of 3PL business that was essentially rate shopping due to the higher fuel prices or is that just normal customers that had the caps?

I think it's just normal customers. We do have some effect of 3PLs in our account base. It could be that a portion of what we dealt with in terms of the contract business where we put in fuel surcharge caps and nonstandard programs came with a customer that had 3PL influence.

I'm not going to say it didn't, but we're not hearing an overwhelming discussion of that. It's just more of -- typically it would be our larger accounts.

Again none of our accounts are even 3% of our business. But we do have accounts that are larger for us and they are typically the larger accounts in the marketplace that are more apt to ask for those kinds of programs. And we did see some growth from those accounts during the quarter and again, this really cropped up during the last six weeks of the quarter where we saw the significant increase in fuel prices.

And then Judy, just going into the stronger seasonal shipping months as we move through the year, can you talk about the plan on what you are looking to do with headcount and equipment? I guess because if the freight's not paying what it needs to pay, my sense was that would be the -- would kind of keep headcount and equipment levels flat through the year until you just get the freight appropriately priced.

Dave, I understand the nature of your question and we obviously are not going to add people and equipment to handle fully priced freight. We're going through this aggressive program to increase prices and that will be the theme that we deal with over the next several months.

Interestingly in the first quarter, I think our employee count increased about 6% compared to a 17% increase in tonnage levels. That gives you an indication of how we're managing the cost side of the business.

And we will continue to manage in that fashion. I understand exactly the issue you're talking about and you sound like me talking to the rest of our people.

Thank you very much.

Thank you, Dave.

Chris Wetherbee, Citigroup.

Just maybe on the yields as we go into April here, just wanted to get a sense of the difference in the fuel surcharges relative to what you're seeing in January, February, March; what kind of switched over in April. Was there -- I guess maybe getting back to the point of a repricing of amount of business there, seems like you're having a lot more traction on that front this month than you were in the last couple of months.

It definitely is. It is associated with taking actions on accounts where we had fuel surcharge caps or nonstandard programs and also dealing with base rate account issues that we needed to to improve pricing. There is a significant effort among our pricing folks and our sales folks to get unprofitable inadequately priced accounts priced where they should be.

Okay, and the progress is progressing that quickly I guess from month to month?

That's helpful. And as far as just a couple of the stats that you guys throw out there, I was just curious, where rail mileage and kind of your tonnage moving north of 1000 miles was relative in the quarter. I guess the final follow-up to that would just be how you think about the RPM rollout in the West in March relative to your profitability. Was there any impact on that? Or was it mostly just the fuel surcharge that was hitting it?

First of all, Chris, I will let David read to you the statistics and then I will talk about RPM.

On the rail, Chris, we had 13.6% of our miles were on the rail versus 11.1% first quarter last year. And then what was your other question? Percentage of -- what was your other question?

Tonnage north of 1000 miles.

Exactly, okay. 59.6% was less than 1000 miles this quarter versus 59.2% versus last year. Slightly higher is percentage of our total business was less than 1000 miles.

And related to RPM in the West, operationally we have rolled that out in February. So we really have two-thirds of the quarter where that was operational.

One-third of the quarter where we were marketing it to customers from a cost standpoint, we've said that it's going to cost us between $4 million to $5 million for the year if we get no additional business. So we would've had two-thirds of a quarter, so about $750,000 I would say for the first quarter that RPM Phase IV in the west cost us.

And when you look at the reception of that, it's been very good. We're hearing good things out of our sales folks. We're seeing some good growth rates and so we think at least at this early stage it's going very well.

Tom Wadewitz, JPMorgan.

Yes, good morning. Let's see, I guess I'm going to hit on some of the popular topics on the call here this morning.

On pricing, can you give us a sense of how much of an acceleration you would expect and the trajectory? You've had this nice step-up in base rates. Did you say 2 or 2.5% in base rates year over year in April?

And I think you said it was down in first quarter, so that's picked up. Does that accelerate towards mid-single digits or high-single digits if we look at the base over the next few months? Or do you kind of stay at that 2.5, 3% area for a couple of months? How would we look at that trajectory?

Tom, I'm not going to give you a prediction for the quarter except to say that my expectation is that it's going to continue to improve from that. Again, I'll say this again, we need -- as a Company we need about probably a 10 to 11% increase in prices to restore our Company's historical profitability levels.

And we have talked very specifically about that with our pricing and sales folks. And again, this is a very aggressive increase program. We will lose some business as a result of this. It's not going to go perfectly well on every single discussion. But that is okay if that is the way that it turns out.

We again I think the bigger part of this effort came during the month of March when we saw that we weren't going to have the results that we were anticipating. And so it takes some time, but this is a more than normal in terms of its aggressiveness in a program targeting market increases. So my expectation is to continue to improve it and that will continue to improve in the second quarter.

When you provide that framework of I guess you were saying 8 to 10, now you're saying 10 to 11, to get back to historical profitability, do you mean historical mid-cycle profitability, like a 95 OR do you mean to get to low 90s OR? So are what kind of broad or specific parameter are you thinking of in terms of historical profitability?

Our historical profitability on average would be probably a 92, 93 operating ratio and that's what we are targeting.

Okay, and if you are getting 2.5, do you have any sense of how long is realistic to get up to that 10 to 11 (multiple speakers)

Tom, I don't want to give you any guidance on that because all I can say to you is that we are being very aggressive in our approach to the market.

Okay, great. Thank you for your time.

Okay, thanks.

Jack Waldo, Stephens.

Good morning, Judy and gentlemen. I wanted to ask first as you talked about the things that impacted the quarter, do you have what the operating ratio would have been for ABF if it wasn't for those factors?

No, not in front of me, but we can get that for you. We know the effect of each of those. Are you talking about weather and you're talking about the BPID claim issue and the fuel surcharge cap issue (multiple speakers)

Yeah, I'm guessing (multiple speakers) sorry, go ahead.

Well, we can give that to you pretty easily. We have those quantified. I think we've given the EPS effect of all of them.

Does the life insurance come out of the operating ratio of ABF or is that in the other line?

It's below the operating line.

Okay, and then historically, you've seen on average 370 basis points of sequential improvement in the operating ratio from a first quarter to a second quarter. I'm just wondering what you see today. Is there anything one way or the other that would impact what we would see the second quarter of 2011 relative to historical performances?

Jack, I don't really want to speak to anything that might try to give a picture of the whole quarter without having the whole quarter in front of me. You know, obviously we are doing things that we think are going to improve our situation.

We still have probably about 5% capacity left in our network. And so we're not in a situation where we can't take more business.

We did see an improvement in our operating ratio of 5 points when you look first quarter '11 to first quarter '10. So the improvement potential is there, it just needs to be better and the way that will happen is through these price improvements.

On your last call, Judy, you stated that you were hoping to get margin improvement in 2011 that was equal or better to what you saw in 2010 which I think was 340 basis points.

Right.

Is the goal or the potential to get that goal changed in your mind?

No, we have a goal of having solid profitability for this Company. Execution of that goal is knocked back a little bit by our first-quarter results. But we still see significant reasons for improvement when we look at the marketplace dynamics that are occurring out there.

If you look at the capacity that serve in the LTL industry, if you look at what is going on with the CSA safety regulations, that is going to reduce the driver force that's available to the truckload industry. But for ABF, a carrier that has won the President's Trophy for Safety six times, it's really not an issue for us.

So it ends up being a positive. So when we look at the marketplace, we look at what is going on with the economy and we look at our opportunities, that is one of the reasons we are comfortable in doing an aggressive price increases because we think it is time. And we think our position, the value that we bring, we deserve to get paid more for what we do, particularly in this kind of a market environment.

Jacob, I think we are going to move along, appreciate you.

John Langenfeld, Robert W. Baird.

On the pricing side, Judy, is there any thought over the longer term to change kind of the pricing structure for how you go to market with the clients? I mean it seems to me like there's some opportunities here to put volume restrictions on clients, give yourself more leeway to price based on where you are in the cycle and based on where things change, like in this case with the fuel surcharge, be able to immediately go back to clients versus having to wait for contracts to cycle through.

Well, you're right about the immediacy of it because we are doing that. And on the downcycle, we saw some accounts come to us and ask for relief during the worst part of the recession. And in some of those cases, we granted that.

So as things moved the other direction, we have done the same and we think that it is fair to do the same. We haven't changed our historical philosophy on how we approach things.

We never knowingly undercut market prices, and you know that continues to be the case. That was the case all the way through the recession.

We had some competitors that did that. That ends up affecting the account base that we deal with. We've had to make some defensive moves to keep accounts that are still profitable for us but they end up being less profitable for us.

What the industry has gone through in terms of the recessionary effects on pricing and then these aggressive competitor actions is significant and it's going to take a little time to recover from. But the good news is we are in an environment where that can happen and again, our own individual Company actions are very aggressive on that front at this point.

Okay and then just one other question. When you think about the pricing growth versus volume growth, your Q1 volumes and the trajectories, getting pretty close but not at peak, but closer to where you were when things peeked out earlier in the 2000s.

At some point, can you say look, we're only exclusively focused on pricing here. We don't need to grow this book of business anymore because it looks to me like you're there.

It looks to me like you have enough density in your network, you don't need to grow any more. Obviously there's a the tail here of the growth you have had thus far, and just be solely focused on price for the next 12, 18, 24 months?

You know, the comment that you made about where we are is well taken. I think the good thing about where we are is the confidence that it brings to both our sales and pricing folks to be able to go out there and much more often focus on price.

But what I want to say is you always have to keep in mind that growth can be growth from good accounts, good valuable accounts long term. And so you've got to keep that in mind as well. The best thing that happens though in an environment like this is that you're able to prioritize what you do based on the more valuable counts and we are glad to be at this point.

Ken Hoexter, Merrill Lynch.

Great, good morning. Judy, when you say you can get aggressive with some of these contracts, can you kind of walk us through how aggressive? Is this going to them and giving thirty-day notices, is this -- I just want to understand how quickly you can adjust the terms of being aggressive with those customers.

You have brought up one specific point that where the aggressiveness can be followed through, and that is through doing a 30-day notice. But the typical situation is that we look at the accounts that are on the list of either unprofitable accounts or accounts that don't meet our profitability levels.

We have identified those, we have work with the people in the field that deal directly with those accounts on getting the increases. We're very specific about the increased level that we need and a certain timeframe is given.

And if we don't see the action being taken that's necessary for that account to agree to that pricing increase and move forward, we will in some cases send a 30-day notice and that accelerates the process more so than it could be if we just waited for a response from the customer side.

I'm just -- I guess I'm a little -- obviously I think the market is just surprised at when you talk about the competitive pricing dynamic and what you did during the downturn, because it seemed like last year that you kind of didn't chase price or volumes in terms of giving up price, that you held price a little firmer in choosing to give up some of those volumes. But now I don't know, optically it looks like with 17% volume growth, it looks like you're kind of chasing that volume at the expense of price. How would you react to that?

Well, you know, one thing that we did was look at peak to trough pricing. I think the peak -- David, is on the phone here. He can tell me.

Sometime in 2007 was the peak and then the trough was '08 (multiple speakers) and what we experienced was about an 8% decline in pricing, and we looked over this recessionary period at what it should have been if we had gotten from that 2007 point all the way through 2011, kind of the normal increases that you would expect, and that would've been an increase of 17%.

So you are talking about what we experienced during that weaker period was an 8% decline versus what could've been a 17% increase. And that's dramatic and that's us. That's not us doing anything other than the normal policies that we have kept in place for all of these years.

So it's just -- the reason I give you those statistics is to tell you about the magnitude of the issue coming out of the recession. And even though you are doing a general rate increase, even though you're doing the contractual increases every month and doing well on those, and I believe our increase this quarter was 4.6%, that is still not enough whenever you are trying to make up for a few years with no pricing increases or actually a decline.

Another way to say that is if we had -- from that peak if we had gotten just normal increases going forward, the peak to trough would've been more like the 17. So you know, we peeked out but then we started losing some down to the bottom. But if we had just gotten what we should normally get, it widens that gap quite a bit.

Again it's not us taking any undercutting of the market type approach. It is just defensive actions and what the market brings. So it's a significant issue that has to be dealt with back in an aggressive way.

We will move this along if you don't mind. Thanks.

Justin Yagerman, Deutsche Bank.

Wanted to get -- Judy, you gave a little bit of color but I don't think you gave numbers. Can you take us through the quarter for tonnage sequentially and thus far in April?

I've got those.

Michael, go ahead.

Gross tonnage per day was up 17.4% for the quarter, January was up 12.6%, February was up 17.3% and March was up 21.6%. Again, these are off low prior year levels but against progressively tougher year-over-year comparisons.

And thus far in April?

Up 15.

Up 15, okay. Okay, great. Obviously a stark change there from March to April and then the comp is probably driving some of that.

But you know, it feels like you guys got held over the barrel a bit by your customers here and maybe some of it is a salesforce issue in terms of not realizing that they had left those fuel surcharge caps in contracts last year when re-addressing annual contract negotiations with customers. Is there a refocusing or a shift that you're making in the salesforce to address that? And I guess how active has that been thus far and how active do you expect it to be over the next couple of months?

Well, there has -- I think this fuel surcharge issue, the effect of it I'm not happy about, and we have addressed that through both the actions that we've taken with customers, and it is a combination of sales and pricing that handles that. But the issue I believe is crystal clear with everyone on both sides and the expected response is crystal clear.

But the other thing that I know sounds obvious, but we are going to be sure that those kinds of fuel surcharge programs are addressed in ways where they're limited in terms of their timeframe but for sure very visible to us. And we feel like that if we leave those in place, we need to be compensated on the base rate side. So that's an aggressive push as well.

Bit it's an issue that I was very unhappy about and we have addressed it both internally and in our customer conversations.

What percentage of contractual accounts does it impact and how will that get addressed as we move through the year?

It's a -- you know, the percentage of contractual accounts you know that I recall is somewhere in the 40% range -- 40 to 50% range. I think it has some kind of a fuel surcharge cap or nonstandard program in it.

But doesn't mean that that is the bigger part of this problem. When you look at the accounts where this is a problem, it's really a handful of accounts where the bigger part of the problem exists and those accounts have already been contacted.

Okay, alright. And I guess when I think about what's going on right now, is part of the issue with getting these contractual increases that customers are just not putting out bids in this current environment? And how is that preceding?

And then I guess how aggressively can you go after those customers who haven't put out bids to get them to open up those contracts and take a look at this stuff?

Justin, I haven't heard about any particular change in the level or number of bids relative to other periods as being an issue. But we are not waiting for contracts to expire to go after this issue at all.

We'll move along, Justin. Appreciate you. Thanks.

Jason Seidl, Dahlman Rose.

Couple quick questions and I don't won't to harp on it too much, but you mentioned that call it 40 to 50% of contractual business actually had these fuel surcharge caps but there was only a handful of customers that created the bulk of the problem. How long do you think it can take, Judy, to sort of address all of them? In other words, call it anywhere between 22 and 28% of your total business? Is that going to take us a full year to cycle through the fuel surcharge caps?

(multiple speakers) I don't think it will take a full year. The reason I had back from our list of issues to address was that we were about 60% of the way through.

So we are already -- and again that's -- most of that may have occurred say April 15 and after so to speak. But there's a lot that's already been done and the expectation is that there is going to be -- the accounts where we're going to have this addressed, the issue's going to be addressed within the next few months.

So you're -- just so I can understand this, you're 60% of the way through all of them?

Yes, yes. (multiple speakers) that's not just the fuel surcharge issue. That's any issues where we're going to an account with an aggressive price-up.

And then I wanted to address a comment you made. You said you had 5% capacity in your network.

I mean are you guys sort of putting your foot down with a lot of accounts? I mean 5%, I would imagine that is an average. So in some places, you are 100% (multiple speakers)

That's exactly right. That's exactly right. It does help you to have the tonnage level we have in the system right now in addressing these problems.

How do you think we got to this point with the caps and with the problems? I would imagine that with such little capacity in the network you could be more choosy about your freight. Am I thinking about this wrong?

No, you're not. And I think we did have an opportunity to do better during the quarter than we did. I will admit that.

We are addressing it in a way that I expect that we would, as we speak. But what caused the problem think I described a little bit earlier is when you go through a four-year recession with a price and that price declined instead of a 17% increase which is what we should have had, you have got a fairly sizable issue to address. That's just pretty obvious when you look at our first-quarter results.

Okay, fair enough, guys, thanks for the time as always.

Thom Albrecht, BB&T Capital Markets.

I guess I'm a little bit confused by maybe something you said earlier, Judy, where -- correct me if I get this wrong -- but basically you were having difficulty managing a bit of a surge in business with smaller accounts that were less profitable. So you're basically saying a lot of the business is organic as opposed to new account development. Is that correct?

I'm only seeing the incorrect about what you said was that smaller accounts and I didn't speak to that. I just said existing accounts, from our existing accounts, we are growing more with accounts that are less profitable for us than other accounts that we have. So we're seeing a greater growth in our less profitable accounts.

And I guess given the fact that length of haul continues to be relatively flattish, it's come off the last couple quarters slightly (multiple speakers)

It's actually down about 2.8% this quarter. So --.

Yeah, on a sequential, but it's about flat year over year.

No, I think that's year-over-year, Thom.

Year-over-year is down 2.8%, Thom.

I'm sorry. Well anyway, so then you're obviously gaining some regional business. But I guess the other question I'm thinking about is -- because you do get a relatively high revenue per shipment figure in the industry.

How much of what you're thinking about is just the overall mix of business? Because to get another 10% in yield, we are already getting $100 or more revenue per shipment than your best competitors. That's a real conundrum.

It's not easy to do, but I wouldn't want to face that problem with a better team than what we have. Because ABF does some things that other carriers don't do.

We focus on the difficult freight. We focus on accounts where we can add value.

So there's a profile difference there, but there's also a value difference. And so I think we probably bring to the marketplace a better opportunity to go after increases because of the way that we do business and that is my expectation.

So as you -- okay, I appreciate that. So if I had to just summarize, if somebody asked me where's all this growth coming from, you would say overwhelmingly it tends to be organic?

It does. It tends to be growth with existing accounts. I was at one of our recent staff meetings with our ABF people where we hear presentations from sales folks, and an interesting comment that was made was that we have had 100% growth at 39 of our facilities out of our locations.

That is just amazing. We have a close tie-in with the manufacturing index and it's that high and it's been up above 50 for 20 months and that is a contributor to that.

But that's interesting information. That's pretty significant. But it tells you the dramatic change that some of our locations are experiencing.

Thom, we're going to try to get a couple more in here.

John Barnes, RBC Capital Markets.

So in kind of summarizing what I heard, you're talking about density is good, that you've got a pretty full network at this point, pricing needs some work, you've got kind of a lingering surcharge issue that may be corrected over the next several months, and it sounds like your regional business now that you have completely rolled it out, as you fill it up, it's still going to cost you a little bit of money in the near term but should become more profitable as you start to fill it up. So you've got a company here that's 10 consecutive quarters of unprofitable results. Do you have confidence that ABFS is going to be profitable at some point in 2011?

Yes, based on everything I know.

That there will be a quarter in 2011 that ABFS will generate a profit?

Well, that is our goal and I don't have in front of me a reason why that can't happen. Obviously there's factors that affect every quarter, but that's our goal.

The second thing is you have said a couple times on the call today, you have used a couple of terms about these fuel surcharges. One thing, dormant, making sure these things are visible to ABFS.

I am just curious, as you look across your book of business outside of these fuel surcharges, is there anything else out there under the surface that is lying dormant or that could pop up and cause an issue in your contractual business or some other element? Has this forced you to go back through your book and make sure you have uncovered anything that might be substandard or out of the norm?

John, we're still working through this, but we have that in mind. I've said a couple times I wasn't happy about what happened there.

We've made the corrections. Obviously you don't know what you don't know and that can happen. But every effort is being made to thoroughly understand the issues that we need to deal with here.

Anthony Gallo, Wells Fargo.

The account base where the surcharge cap or nonstandard fuel surcharge programs were in place, what percent of that account pace had already gone through a repricing discussion with you?

You know, I don't have that information in front of me. I would imagine that some of it did because again, this fuel surcharge issue when it cropped up on some of those accounts, it was the reason that the account became unprofitable for us and caused us to need the action. But you know, I think some of them had already been through some pricing discussions at an earlier point. But I don't have that percentage in front of me.

So when you go through those initial pricing discussions, is fuel surcharge not part of the discussion at that time?

It absolutely is, but if it's thought to be a neutral issue, in other words it's not really impacting things year over year, it might not have been dealt with. The mistake that we made on these was to not have some kind of a time limit on them and readdress them as fuel prices have gone up. That's really what we should have done differently.

And I guess somewhat related, if a major competitor of yours has a lower cost structure at least for the time being, doesn't that to some degree inhibit your ability to get pricing more where you need to get it?

Well, it could affect the marketplace pricing is what I would suggest to you. That certainly can happen.

Whenever we are out in the marketplace, we need to be market competitive on the bids or the customer arrangement in order to be able to add that business. So it can have an effect on the marketplace.

And we haven't seen any dramatic specific actions by the carrier that you are talking about at this point, but we do think that that could have an effect on the marketplace.

Todd Fowler, KeyBanc Capital Markets.

This is actually Ryan on for Todd. Just a couple of quick ones here. Most of my questions have been answered.

One, I know last quarter you guys had some legal costs that you had called out. I believe it was $0.05 or so in the quarter. I just wanted to see if you guys had called it out here this quarter, if I miss that. If not, did you have anything worth mentioning I guess?

We really didn't have anything that was worth mentioning. The appeal was less expensive in terms of total fees than what we have been experiencing last year but hopefully more impactful.

Gotcha. And then I guess my last question is just if you look at the tonnage number you gave here April up 15%, it does look like comparisons obviously are getting more difficult in the out quarters here and obviously in the second quarter relative to the first.

You mentioned with this -- some of the initiatives you guys have taken here recently on the pricing side, on the yield side that you could maybe potentially call some business. Is that 15%, does that already reflect maybe some business that you guys had to walk away from based on those initiatives or is that (multiple speakers)

It could. It's a number of factors. That's one of them.

But it's also the case that the comparison was more difficult -- I'm going to say this and the guys on the -- David and Michael can correct me -- but I think April to April last year, we grew about 11%. And then if you look back to March, March over March was about 6.5, something like that. And so there was a more difficult comparison in April than there was in March terms of tonnage levels. So that is a part of it as well.

But are you seeing maybe some business that you guys are walking away from now? I guess my question is (multiple speakers)

We did, we have lost some business, yes. The answer to your question is yes, we have lost some business.

Okay, so then if you are at 15% in April, what's sort of the dynamic -- I'm not asking for guidance on tonnage, but should we be thinking about tonnage more in the mid to high-single digit type increases going forward here or maybe less or more as maybe some of these initiatives take hold?

Well, Ryan, we really don't know because the economy is bringing some pretty significant changes to our marketplace. And again, one of the reasons that we have the confidence to go to the marketplace with the increased levels that we have is because we really feel like if we lose business that we can replace it with better business.

So we are not sure what will happen with the trend line there, but the industry, the marketplace dynamics that are out there are pretty favorable for the LTL marketplace coming up in the next few months. And so we're hopeful to get the increases and to keep the business levels at a pretty good place.

I think we're going to take one more here.

Thanks, that's helpful, guys.

Susan, maybe one more. We're over our time.

Jeff Kauffman, Sterne Agee.

The bright questions have been asked, so let me ask a less bright one here. If I -- two quick ones.

Number one, am I letting the tail wag the dog on this fuel cap issue? Because at the end of the day, we were just talking about $2 million in the quarter.

Is this something that's just going to nag until we get it fixed or does this have the potential to be a 10 or $15 million hit at some point in the future?

It doesn't have the ability to become that unless the marketplace pricing changes drive that. It wouldn't be individual company action that would take it to that level.

The reason that I brought it up and that we have outlined it here is because it was a factor that affected us in the month of March that we hadn't been talking about because it was largely during the last six weeks of the quarter. And we are dealing with it is probably the most important comment there.

So it should become a much less issue, Jeff, to your point. But I do want to make a point about the marketplace.

We need to have the base rate increases that will offset these programs, that these programs become more of an issue in the marketplace. And our folks at this point are being very diligent about making sure that you have it in one place or the other and that the account makes sense for you.

And that's something that we have always done. But the marketplace can drive these kinds of changes and that is certainly what we saw post the 2008 price spike and as a result of the recessionary environment.

Alright, final question and thank you for your time. You know, historically this industry has not been kind to companies that grow at double-digit rates with really low yield improvements.

It is hard to argue that your strategy hasn't worked because you've been generating these 20% incremental margins with it. But at some point you have got to say, listen, we are stopping, we're the right size.

With 5% excess capacity in the network, are you basically saying we are the right size and now it's time to be a lot pickier and choosier going forward especially with the tightening industry capacity that we see coming?

I agree with you, Jeff, with one exception. We still have capacity in our regional network that can bring the Company significant growth.

I think we've discussed this before. Our objective there is to have the share that we have in the long-haul market, in the regional market and that would be a tremendous growth opportunity for us.

We would make sure that we do that with adequate prices. But I want to speak to that because that is one part of our network that is at less than full capacity.

Judy; thank you, guys, congratulations. Thank you.

Sir, you can go ahead, Mr. Humphrey.

We just want to thank everybody for joining us this morning. We appreciate your interest in Arkansas Best Corporation. This concludes our call.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.