ArcBest Corp (ARCB) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Arkansas Best Corporation's third-quarter 2013 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded Monday, November 11, 2013.

I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead.

Welcome to the Arkansas Best Corporation third-quarter 2013 earnings conference call. Our presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of Arkansas Best Corporation; Mr. Michael E. Newcity, Senior Vice President, Chief Financial Officer, and Chief Information Officer of Arkansas Best Corporation.

On this morning's call, we will give an update on the current quarter's results but will not be taking any questions. As always, following today's call, we will be available to speak with you to discuss the publicly disclosed information about our third-quarter results. 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 risk. 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 public filings.

Before we begin, we want to acknowledge that today is Veterans' Day. We would like to say a special thank you to all of the men and women who have proudly served our country throughout the world while defending the freedoms that we are so privileged to enjoy. And we want to express our sincere and deepest gratitude for the service and sacrifice of all of our US veterans, including the many veterans who work for our Company.

We will now begin with Mr. Newcity.

Thank you for joining us. This morning Arkansas Best reported third-quarter results that reflected seasonal improvements for ABF Freight, along with continued stronger performance at our emerging non-asset based businesses, in particular at Panther. While we were pleased with the quarterly results, we recognize that this is typically one of our stronger periods of the year, and that we are now entering the traditionally slower season. In addition, we also note that ABF Freight's year-to-date breakeven results continue to reflect the high cost structure associated with the previous labor agreement for employees represented by the International Brotherhood of Teamsters, which has now expired.

With the new five-year ABF National Master Freight agreement that became effective on November 3, we have begun to realize cost savings associated with wage and vacation reductions that are essential to returning ABF to its historic sustained profitability. The estimated net effect of the November 3 wage rate reduction and the August 1 benefit rate increase is an initial reduction of approximately 4% to the combined total contractual wage and benefit rate under the 2013 ABF NMFA. For subsequent years, the compounded annual contractual wage and benefit contribution rates are estimated to increase approximately 2.5% to 3% through the end of the agreement.

As previously announced, the initial wage and benefit reduction to ABF's cost structure, combined with the flexibility in operational changes resulting from the new contract, will result in an estimated net savings of between $55 million to $65 million on an annualized basis. Judy will talk more in a bit about additional efforts that are underway to help return ABF to its historical levels of profitability. But now I would like to cover the details of our results for the third quarter of 2013.

Arkansas Best third-quarter 2013 revenue was $623.4 million compared to $577.5 million last year. Third-quarter 2013 net income was $0.52 per share compared to net income of $0.24 per share last year. As previously announced, as of July 1 we froze the accrual of future benefits under our nonunion defined-benefit pension plan resulting in reduced retirement costs.

Even with contributions to the defined contribution plan for these participants, nonunion pension costs for the nine months through September 30, 2013, were $1.5 million below last year. Fourth-quarter nonunion pension expense is estimated to be approximately $3 million lower than fourth quarter of 2012 -- again, net of increased costs of the defined contribution plan. However, an effect of having no cost for future service in the pension plan is that settlement expense may occur when lump-sum distributions exceed the annual interest cost of the plan. In the third quarter we recognized a pension settlement charge of $1.8 million pretax or $0.04 per share. The amount of the third-quarter charge reflected the effect of nine months of distributions.

Settlement expense will also be recognized in fourth quarter 2013, but in the range of $0.5 million to $0.7 million on a pretax basis, with the charge being lower because it will be based only on fourth-quarter distributions. We may continue to incur settlement expense in 2014, but the quarterly charges will depend on the amount of distributions settled.

Third-quarter results also reflect a tax benefit of $0.02 per share related to the reversal of previously established deferred tax asset valuation allowances, which influenced our 33.4% tax rate for the quarter. Without the tax benefit and the settlement expense, our third-quarter of 2013 net income was $0.54 per share. For the first nine months of 2013, Arkansas Best net income was $0.20 per share on revenue of $1.7 billion, compared to a very slight profit on revenue of $1.5 billion during the first nine months of 2012.

We ended the third quarter with unrestricted cash and short-term investments of $136 million, an increase of nearly $18 million during the quarter. Combined with the available resources under our AR securitization agreement, our total liquidity equals $191 million.

Our total debt of $124 million includes the remaining $87 million balance on our $100 million five-year term loan associated with the Panther acquisition and $37 million of capital leases and notes payable, primarily on ABF equipment. The composite interest rate on all of our debt is 2.2%. Full details of our GAAP cash flow are included in our earnings press release.

Moving on to ABF's results, ABF reported third-quarter revenue of $471 million, a per-day increase of approximately 4% compared to last year. ABF's quarterly tonnage per day increased by 3.5% compared to last year's third quarter. This included monthly year-over-year tonnage increases of 4.6% in July, 3.9% in August, and 1.7% in September against increasingly difficult comparisons versus the prior year.

Third-quarter sequential tonnage trends versus the second quarter were below historical averages. ABF's third-quarter operating ratio was 96.3% compared to 98.1% in last year's third quarter.

ABF's total billed revenue per hundredweight was $28.67, an increase of less than 1% versus the third quarter of last year. As we've seen for some time, changes in freight profile and account mix continue to impact ABF's yield comparison. When adjusted for fuel surcharges, profile, and account mix changes, ABF's true total third-quarter pricing percentage increase was approximately 2%.

During the quarter, ABF experienced success in obtaining rate increases from its contract and deferred pricing accounts, as pricing on those accounts who renewed during the quarter increased by an average of 3.4%. ABF's total weight per shipment was 1,362 pounds, 1% below that of last year's third quarter. ABF's average length of haul was 1,017 miles compared to 1,033 miles last year, a decrease of 1.6%. This is a profile change that had a dampening effect on reported yields.

During this year's third quarter, regional freight, defined as tonnage moving 1,000 miles or less, represented 60.5% of ABF's total tonnage, an increase of nearly 1% compared to the third quarter of 2012. In this year's third quarter, ABF's regional business grew 5%, while our traditional long-haul business increased by just above 1%.

For the month of October 2013, ABF's average daily tonnage -- total tonnage increased 2% to 3% compared to October 2012, which experienced a tonnage decline versus October 2011, in part due to the effect of Hurricane Sandy. On a per-day basis, ABF's October 2013 revenues were 6% to 7% above October 2012, reflecting a combination of higher revenue per hundredweight and the tonnage improvement. In future months, tonnage comparisons versus the prior year will be more challenging, as business volumes began to produce year-over-year improvement in November of 2012.

Revenues that are emerging non-asset based businesses totaled $162 million. In the third quarter, non-asset revenues equaled 26% of Arkansas Best's total consolidated revenue, the highest percentage in any quarter of this year. Third-quarter revenue and gross margin improvements at Panther were highlighted by increases in shipments in the high-value products and life science customer verticals. Panther's third-quarter operating profit nearly tripled $3.1 million on a 9% increase in third-quarter revenue to $66 million.

Panther's third-quarter 2013 EBITDA was approximately $5.8 million, a 75% increase over last year. Year-to-date through September, Panther's EBITDA was $11.6 million.

The total operating profit of the remaining non-asset based companies improved both in the third quarter and in the nine-month period since the beginning of the year. On a combined basis in the third quarter, all of our non-asset based businesses produced EBITDA of $9.7 million compared to $6.6 million in the third quarter of last year. Year-to-date through September 2013, non-asset EBITDA was nearly $20 million.

Our capital expenditure totals so far this year have been minimal as a result of the uncertainty related to the implementation of our labor agreement. We now anticipate our 2013 net capital expenditures will be approximately $25 million to $30 million, and our 2013 depreciation and amortization of fixed assets to be in a range of $80 million to $85 million. Capital expenditure expectations for 2014 will be discussed with the announcement of our fourth-quarter and year-end results. And now, I will turn it over to Judy for her thoughts about our quarter.

Thank you, Michael, and good morning, everyone. During what is typically the best-performing period of the year, our third-quarter results were positively affected by operating profits and increased revenues at all of our subsidiaries. Our emerging non-asset based businesses continued to experience success through continued growth in revenues, operating income, and cash generation.

In addition to allowing us to offer our customers a broad array of logistics services, these companies are expanding in order to have a greater and greater positive impact on Arkansas Best's results. Despite experiencing improved third-quarter operating results, however, ABF's high cost structure under the extended labor contract in effect during the third quarter was a significant factor in ABF only being slightly profitable on a year-to-date basis.

As reported on October 30, the new ABF National Master Freight Agreement for employees represented by the Teamsters was implemented on November 3, 2013, and runs through March 31, 2018. Full ratification of the labor contract represents a major milestone for ABF. We're grateful to now have a contract in place that provides us needed cost savings.

While working to achieve the new labor agreement, other initiatives have been underway to improve operational efficiency while maintaining a high level of service for our customers. As we said previously, the depth of any future network improvements would depend upon the actual level of savings achieved with our new contract. While we believe the savings reached in the negotiations process puts ABF in a much stronger position to further invest and serve customers and puts the Company on a path to better financial performance, it does not meet our objective overturning ABF to its historic sustained levels of profitability. Therefore, an active network analysis is underway, the results of which are expected to be announced in the first half of 2014.

Now more about our emerging businesses. During the third quarter, Panther benefited from tighter capacity in the premium logistics markets that increased the demand for their services and provided opportunities for improved margins. As Michael mentioned earlier, the high-value product and life science industry verticals were particularly strong during the quarter. In addition, modest economic improvement contributed to a strengthening automotive sector and additional activity in the manufacturing environment that produced increased revenues and profits at Panther.

Previous investments in Panther's sales personnel and customer service centers are beginning to yield benefits and were helpful in improving Panther's ability to effectively respond to customer needs throughout the quarter. I am encouraged by the enthusiasm and teamwork displayed by this Panther team. Their attitude of finding a way to achieve their goals and meet the needs of their customers puts Panther in a great position for generating profitable growth in the future.

Consistent with what we saw in the second quarter, each of the other non-asset base companies also grew their revenues in the third quarter. The domestic and global transportation management segment, now operating as ABF Logistics, includes our brokerage, intermodal, and global shipping businesses; and our supply chain solutions, including TMS and warehousing.

Success in finding a match between customer needs and the capabilities of this new unit contributed to a 65% increase in revenue versus last year. During the third quarter, each element of this unit added new business at a rapid pace. Third-quarter operating profit for this portion of our business was below last year, due to costs associated with continued investments of freight brokerage personnel and resources that are expected to make a positive contribution to future profit margins.

Our household goods moving services segment increased third-quarter revenues by 19% and operating profit by 29%. Versus the same period last year, significant additions in military shipments and revenues were positive, contributing to the third quarter success of this division. On a year-to-date basis, this group has more than tripled operating income.

Our emergency and preventative maintenance business increased third-quarter revenues by 13%, while operating income was slightly below the same period last year. FleetNet continues to grow its business and expand opportunities for serving its customers, especially in the preventative maintenance portion of its business. Milder than expected summer weather and the addition of new personnel impacted this quarter's margins. However, we expect that the investments in people and other resources that FleetNet is making now will be beneficial in the future.

During the seasonally strong third quarter, ABF's operating profit improved versus last year, as ABF experienced increases in both average daily tonnage and billed revenue per hundredweight for the first time since the second quarter of 2011. The combination of improved pricing and business growth contributed to the improved profit margins seen during the quarter.

In each month of the third quarter, ABF experienced year-over-year increases in tonnage, though at decreasing levels, due to comparisons to monthly tonnage improvements throughout the third quarter of 2012. The industry pricing environment continued to be stable, as reflected by ABF's positive price increases versus last year and our success in obtaining price increases from contract and deferred pricing accounts that renewed during the third quarter.

On a sequential basis versus the second quarter, ABF's billed revenue per hundredweight was up over 3%. The conclusion of ABF's union negotiation process gives us a labor contract that takes our Company out to early 2018. As a result, we look forward to a more stable environment that allows us to place a greater focus on listening to our customers' needs and responding with the superior transportation services for which ABF has always been known.

And now I would like to highlight some additional positive news at ABF during the recent quarter. In September, ABF celebrated its 90th anniversary of continuous operation as a trucking and transportation company. Our Company began as a local freight hauler in 1923 here in Fort Smith, Arkansas, and has evolved over the last nine decades into a leading global transportation provider of customizable supply chain solutions.

We have achieved our success because of the dedicated service of many employees over the years who have adapted to change and continually focused on understanding and meeting our customers' needs. I was pleased to join the ABF family in celebrating this important milestone in our history. We strive to work toward much success and prosperity for ABF in the future.

I am also proud to share the accomplishments of two ABF drivers who achieved National Champion status at ATA's National Truck Driving Championships in late August. Ralph Garcia represented New Mexico in the four-axle category; and Tim Melody, who represented Idaho in the Twins category, both took first place in the Driving Championships. In addition, Ralph Garcia was named the winner of the Neill Darmstadter Professional Excellence Award that recognizes a driver judged to best exemplify characteristics of a professional truck driver -- based on their driving record, skill, knowledge, attitude toward safety, and personality. We are privileged to have Ralph and Tim utilize their superior driving skills to safely represent ABF on our nation's highways.

Finally, last month at the American Trucking Association's annual conference, ABF's Jason Wing was recognized as the winner of the National Safety Professional Award of Excellence from ATA. Jason is an important member of ABF's corporate Safety and Security department, and he's very active in several initiatives dedicated to promoting safety throughout the trucking industry. As the only six-time winner of the ATA President's Trophy, the trucking industry's premier safety award, ABF is dedicated to operating in a safe and efficient manner as our trucks move across the country. I am pleased that Jason has been recognized for his efforts in maintaining ABF's reputation as one of the safest motor carriers in the United States.

More than ever in our recent quarters, and certainly since the Great Recession, we at Arkansas Best feel strongly that the window of opportunity before us is wide open, with substantial growth avenues ahead of us. We're excited to see the stronger performance in our non-asset based businesses in the second half of the year. At ABF, I want to thank all our employees for their patience and dedication to efficiently performing their jobs during our contract negotiations. Their sacrifices provide a more stable, predictable path forward for ABF Freight in the future. Thank you for your time today, and we will be speaking with you again soon.

We want to thank you for joining us this morning, and we appreciate your interest in Arkansas Best Corporation. This concludes our conference call. Thank you.

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. Have a great day, everyone.