ArcBest Corp (ARCB) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Arkansas Best Corporation fourth quarter 2013 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. (Operator Instructions). As a reminder, this conference call is being recorded on Thursday January 30, 2014.

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

Welcome to the Arkansas Best Corporation's fourth quarter 2013 earnings conference call. We will have a short discussion of fourth quarter and full year results, and then we will open up for a question and answer period. Our presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of Arkansas Best Corporation, and Mr. Michael E. Newcity, Senior Vice President, Chief Financial Officer and Chief Information Officer of Arkansas Best Corporation.

We thank you for joining us today. In order to help you better understand our 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 in the Company's most recent SEC public filings.

We will now begin with Mr. Newcity.

Thank you for joining us this morning. Before I get into details about the results, I would like to begin by stating that 2013 was a pivotal year for our Company. As we began 2013, we knew we had a great deal that we needed to accomplish, and we faced a number of financial uncertainties. Among them, the looming fiscal cliff, an unresolved labor contract, and the ongoing evolution in the transportation and logistics marketplace, even while the economy remained uncertain.

By the year's end, we achieved some major milestones, including substantially reversing 2012's trend of unacceptable losses, and implementing a new five-year labor contract with the Teamsters. Judy will speak in more detail about the year's highlights, but overall we are far better positioned than we have been in many years to invest in the business and grow. It is an exciting time and we are devoting our energy and resources into value-added activities that will help us serve our customers even more fully going forward.

Now I would like to cover the details of our results for the fourth quarter and full year of 2013. Arkansas Best fourth quarter 2013 revenue was $578.5 million, compared to $537 million last year. Arkansas Best's fourth quarter net income was $0.38 per share. Excluding adjustment for non-operational items in the quarter, fourth quarter 2013 net income was $0.31 per share. The non-operational items that impacted the fourth quarter are outlined in a reconciliation table, that is a part of the financials we provided with today's earnings release. There are three items included here.

First, a positive adjustment to ABS Freight union vacation liability associated with the initial wage rate reduction, and a one-week reduction in annual compensated union vacation eligibility contained in the ABF National Master Freight agreement. The labor contract was implemented on November 3 of last year, and its vacation adjustment was for amounts previously expensed but not paid in prior periods going back to April 1, 2013. This adjustment equated to $0.06 per share. Second, a tax benefit related to the reversal of previously established deferred tax asset valuation allowances. This tax benefit equated to $0.02 per share. Lastly, a pension settlement charge associated with the July 1, 2013 freeze of benefit accruals under our non-union defined benefit pension plan. This charge equated to $0.01 per share.

During the fourth quarter, we had a couple of market-based items whose impact is reflected in our financials. Market gains on the cash surrender value of life insurance policies added $0.04 per share to our results. This is reported in Other Income and compared to a very slight market loss in last year's fourth quarter. Also, we incurred operating costs of $0.05 per share after tax, associated with long-term incentive plans that were impacted by Arkansas Best's total shareholder return relative to a comparable peer group.

For the full year of 2013, Arkansas Best had revenue of $2.3 billion, compared to 2012 revenue of $2.1 billion. Net income for 2013 was $0.59 per share, compared to a net loss of $0.31 per share in 2012. Because of the previously mentioned freeze of our non-union defined benefit plan, the plan cost equated to $6.3 million in 2013, all of which occurred in the first half of the year before the planned freeze, compared to $16.6 million in 2012. 2013 also includes $5.9 million of costs related to a discretionary contribution into our non-union defined contribution plan that now includes the employees who were previously in our defined benefit plan.

Our effective tax rate for 2013 was 18.8%. We had a benefit rate of 54.5% in 2012. This year's tax rate includes the effects of the previously mentioned net reductions of valuation allowances on deferred tax assets which for the full year equaled $1.4 million. Also, our 2013 tax rate reflects the full benefit of the renewable energy and alternative fuels credit for both 2012 and 2013. Without the reductions from these two significant items, our 2013 tax rate would have been approximately 36%. We expect our 2014 tax rate to reflect a more normalized historical rate in the range of 37% to 40%.

We closed 2013 with unrestricted cash and short-term investments of $141 million, an increase of over $20 million during the year, combined with the available resources under our AR securitization agreement,our total liquidity equals $196 million. Our total debt of $113 million includes the remaining $84 million balance on our $100 million five-year term loan associated with the Panther acquisition, and $29 million of capital leases and notes payable, primarily on ABS Freight equipment. The composite interest rate on all of our debt is the 2.1%. Full details of our GAAP cash flow are included in our earnings press release.

ABF Freight reported fourth quarter revenue of $437 million, a 5.4% increase compared to last year. ABF Freight's quarterly tonnage per day increased 2.7% compared to last year's fourth quarter. This included monthly year-over-year tonnage increases of 2.6% in October, 1.5% in November, and 4.4% in December. Although recall that October of 2012 was impacted by Hurricane Sandy. ABF Freight's fourth quarter operating ratio was 97.7% compared to 103.4% in the fourth quarter of 2012.

ABF Freight fourth quarter 2013 total billed revenue per hundred weight was $28.46. An increase of $2.3% versus the fourth quarter of last year. ABF Freight's total weight per shipment was 1,327 pounds,2.7% below that of last years' fourth quarter, and ABF Freight's average length of haul equaled 1,011 miles during the fourth quarter, compared to 1,036 miles in last year's fourth quarter. Adverse weather in late December impacted ABF Freight's fourth quarter 2013 operating ratio by approximately 0.4 percentage points. On a per share basis, this reduced Arkansas Best's fourth quarter results by $0.04. This was about the same as the operating ratio and EPS impact of Hurricane Sandy in 2012.

For the month of January 2014, ABF Freight's total tonnage is expected to be flat to slightly down compared to January 2013, when ABF Freight's tonnage increased over 6% versus the prior year. ABF Freight's January 2014 revenues are expected to increase by approximately 1% to 2% above January 2013 levels reflecting improved account pricing. During the remainder of first quarter 2014, tonnage comparisons versus the prior year will be more challenging based on business strengths ABF Freight experienced throughout the first quarter of 2014. Weather events throughout January have significantly affected ABF Freight's business levels and productivity. We estimate the negative impact on ABF's operating income this month to be approximately $4 million. Without the effects of the weather, we would have expected January revenue to increase by 4% to 5% versus last year, and total tonnage to have increased by 2.5% to 3%.

For the full year of 2013, ABF Freight reported revenue of $1.76 billion, versus $1.7 billion in 2012. ABF Freight's 2013 total tonnage per day increased 3.6% versus the previous year. ABF Freight's full year operating ratio was 99.4% compared to 101.2% in 2012.

Fourth quarter revenues at all of our non-asset-based businesses totaled $150 million. On a combined basis in the fourth quarter, these businesses produced EBITDA of $8.2 million compared to $5.8 million in the fourth quarter of 2012. Panther reported fourth quarter revenue of $67 million. Panther nearly tripled its operating income in the fourth quarter. Panther's fourth quarter 2013 EBITDA was $5.9 million, a 65% increase over last year. Full year 2013 EBITDA at Panther was $17.5 million.

ABF Logistics continued its pattern of strong top line growth by increasing fourth quarter revenue by 43%, and full year revenue by 58%. FleetNet, our emergency and preventive maintenance company, experienced double-digit growth in revenues and improved profits in both the fourth quarter and during the entire year. Fourth quarter revenue and our household goods moving services company, Albert, was comparable to last year. For full year 2013, Albert's 6% revenue increase resulted in improvement in annual operating income approaching 2 times greater.

On a combined basis in all of 2013, Arkansas Best non-asset based businesses represented 25% of total consolidated revenue. Compared with 2012 and 2011, they accounted for 19% and 12% of consolidated revenue respectively. This year's revenue total illustrates the success of our corporate growth strategy to offer a comprehensive array of logistic services to our customers.

Now I will turn it over to Judy for her thoughts about our quarter.

Thank you Michael and good morning everyone. As Michael said earlier, we faced a number of challenges and opportunities heading into 2013. I am happy to report that the number one achievement for the year was the successful ratification and implementation of our new five-year labor agreement with the Teamsters. While this process went on longer than we expected, in the end, we were able to reduce our cost structure, and provide more stability for ABF Freight going forward.

With the uncertainty that surrounded the labor contract for much of the year, I am particularly grateful to our ABF Freight union employees for continuing to focus on the job at hand, and providing our customers with the high level of service they expect. The professionalism of ABFers is met with high record in our industry. Our sales force and our operations team did a great job of managing through the uncertainties as well.

At the same time, we also continued to make strategic investments in our emerging businesses. These companies, Panther Expedited Services, our newly-formed ABF Logistics business, FleetNet America and Albert companies have tremendous growth potential going forward. At Panther, demand for premium logistics services increased in almost all of the markets in which the Company operates. As capacity tightened, Panther handled additional shipments and improving margins. In particular, revenue and profit in automotive, high value products, and manufacturing demonstrated the greatest fourth quarter strength. It is exciting to see Panther end the year on such a strong note after the Company's first full year of operation as an Arkansas Best Company.

As Michael mentioned, in the fourth quarter, the other emerging businesses continued to experience year-over-year revenue growth as well. First, let me talk about ABF Logistics, which we formed as a separate stand-alone sister company to ABF Freight in late summer. We decided to align these businesses together under the new ABF Logistics operating segment, so our customers can more easily understand and access all of the services we offer, and so that we can better support the delivery of these solutions to unleash their growth potential. The individual businesses that make up ABF Logistics include freight brokerage, intermodal, global shipping and supply chain solutions. Increased shipment counts from new and existing customers contributed to fourth quarter year-over-year revenue growth at each of these businesses.

Operating margins at ABF Logistics continue to be affected by investments we have made to enhance customer service. We expect our investments to contribute to improved profitability in the future. We see tremendous value in the individual ABF and Panther brands, as do their unique customers. We also see significant value in selling across those brands as our customers face unique transportation and logistics challenges every day. And they increasingly want holistic solutions from a single provider. ABF Logistics and Panther each provide service that is both complement both ABF Freight and each other, giving us the needed capabilities to be that holistic solutions provider. While both ABF Logistics and Panther share a culture of exceptional customer service, and an attitude of creative and collaborative problem solving, their operational approaches to solving logistics problems are unique to each company.

As I mentioned before, ABF Logistics delivers a wide-ranging array of third-party logistics services. Panther offers solutions to the most critical shipping needs in the industry, including their renowned ground expedite service, air forwarding, air charter, temperature validation, and special handling. Panther provides an elite level of service and monitoring, that allows them to successfully execute against stringent shipping requirements, that often cannot be met by most logistics providers.

FleetNet had a good quarter as well, resulting from a higher volume of maintenance events from both new and existing customers. The severe weather in December increased the demand for FleetNet services. Better pricing on the business FleetNet handled contributed to a significant fourth quarter improvement in operating income. Profits were also enhanced by labor efficiencies and cost controls experienced during a period of business growth.

Albert experienced a slight increase in fourth quarter revenue despite handling fewer shipments. A softer housing market compared to the first half of the year and the mix of business handled by this division contributed to lower fourth quarter margins. I am encouraged by Albert's full-year results. The combination of revenue growth and significant improvement in operating income, offers a basis for continued growth and profit in the future. A combination of increased freight tonnage moving at better prices added to fourth quarter profitability at ABF Freight compared to last year.

Economic stability and increased consumer demand provided over 5% more freight shipments than our network. As a result, improved network efficiencies translated into increased profitability. In addition, the new ABF National Master Freight agreement implemented in early November immediately reduced labor costs, and positively impacted fourth quarter results. Once again, ABF Freight's cargo claim ratio improved even over last year's historical low. Measured as a percent of net cash payouts to revenues 2013's 0.45% figure represents the 17th year in a row of improvement in this important measure.

The stability we have seen for some time in the LTL industry pricing environment remains in place and contributed to ABF Freight's ability to obtain the price increases we needed to positively impact the bottom line. In early December ABF Freight filed a change of operations proposal that outlined the consolidation of 21 smaller terminals into nearby facilities. Combined with the 8 terminal consolidations that occurred in the second half of 2013, this change of operations will result in reducing the total number of ABF Freight facilities to 248.

The change of operations hearing with the Teamster leadership was held last week. And I am pleased to report that ABF frailty's proposal was approved. Implementation of the plan can be begin as soon as February 16. We will provide more detail on the cost savings related to these network changes during our first quarter earnings conference call expected to occur in late April.

In general we are pleased with the work accomplished in 2013 to put our Company on a much more solid financial footing. We are energized by the solid growth prospects at all of the operating segments, and look forward to seeing more of our investments pay off as the emerging businesses grow going forward. As we better align and describe the full suite of service offerings at ABF and Panther, we keep in mind that our top priority is to provide easily accessible services across the supply chain that our customers demand.

Now I will let Michael finish up with some additional financial information.

I will wrap things up with a few details about our CapEx. In 2013, Arkansas Best's total net capital expenditures equated to $24 million, including approximately $3 million of city and road tractors at ABF Freight. Because the actual implementation of ABF Freight's new labor agreement did not occur until early November, our purchase of revenue equipment was low and well below that of a normal year.

Depreciation and amortization costs on fixed assets equaled $84 million. For 2014, we expect Arkansas Best's net capital expenditures to be in the range of $90 million to $100 million. This includes approximately $60 million of revenue equipment at ABF Freight, made up of road and city tractors and trailers. The remainder of CapEx this year will go for additional equipment needs at all of the companies, as well as real estate improvements and IT investment throughout the corporation. Depreciation and amortization costs on fixed assets in 2014 are expected to be in a range of $85 million to $90 million.

I think we are now ready to take some questions.

Darrell, I think we are ready to take some questions.

Perfect. (Operator Instructions). And our first question comes from the line of Bill Greene. Please go ahead

Good morning. Thanks for taking the question. Michael or Judy, can I ask for a little bit of help thinking about how things will evolve from here? We had a lot of moving pieces around weather in fourth quarter and first quarter, plus the new labor deal. Typically we see the first quarter operating ratio deteriorate relative to fourth, but maybe because the deal came into effect in the middle of the quarter that won't be the case? Is there any color to help us think how to adjust our thinking on seasonality for first quarter?

Well, Bill, we really as you know don't give guidance about that. I think the normal progression of fourth quarter into first quarter, the operating ratio has on average increased about 4 points. Obviously the factors as you mention are going to be the fact that you have an improved result from a lower cost structure associated with the labor contract. We also will have some effect of the implementation of the consolidation of the facilities that I just mentioned. And then the last factor which is yet to be known is the full impact of the weather. We are giving you our best estimate but I know that there are still effects. I think yesterday we had maybe as many as 27 facilities that were affected by the weather in the Southeast. And so if those are the pieces, it is even going to be hard for us to tell what the first quarter should look like relative to our own forecasts, and our own expectations that we had prior to these weather events.

Yes, it is tough. Judy, let me ask for one quick thought on the development of pricing. It has been a big theme for LTLs for a while, it feels like it is normalizing a bit. Do you agree with that sentiment, do you feel there is more scope for pretty good pricing go forward? Any thoughts on that would be helpful, thank you.

Yes, I think I mentioned that there was relative stability in the pricing environment, and I think just based on the length of time that has been in place, the initiatives of others to improve their situation profitability-wise that we compete with, I think it really bodes well for an environment where we should be able to continue to be successful in that arena. And we have had good increases on our contract renewals as well recently. So that is a positive sign.

Thanks a lot, bill. Appreciate it.

Thanks, bill.

And our next question, comes from the line of Chris Wetherbee. Please go ahead.

Great. Thanks. Good morning. Maybe just touching on the competitive environment a little bit on the back of that last question about pricing. It sound like things are continuing to progress okay. Could you give us a little more color on sort of the contractual rate increases that maybe you are getting, and if there have been any sort of changes as we have seen some of the competitive players sort of evolve a little bit over the last several weeks or months?

We have renewed our contracts in the fourth quarter at a 4% increase level, which is good when you do a comparison back to recent history. So I think that is the piece that you ask about. From a competitor standpoint, we are really seeing normal activity there. Even with some of the relatively significant events I think that have been going on out there in the competitive environment, we haven't seen as of impact of that as you would expect. What we are focused on is our own stability and our own Company. This last year was an interesting year for us. Really beyond last year and into 2011/2012 we were facing some of the same issues that we brought to a completion in 2013. So our sales force is very excited to go into 2014 with all of the services that we have to offer, and with the story that we have stability in our business, and that is a very encouraging scenario for our sales forces. So they like their position competitively, and they are excited about going out there and being successful.

Okay. That makes sense. And then just a follow-up on Panther. Just when I think about the seasonality of that business a little bit more, I sort of want to think about it on a normalized cycle. How should that look in the first quarter and second quarter, overall profitability and business activity at Panther?

Well, I think when you think about Panther, the normal year would include a better second and third quarter, but what is interesting is that when you have weather effects like we have seen in both really the end of the fourth quarter and into January here. That can be a positive for them because of their ability to rescue shipments that otherwise get delayed because of weather. We have been seeing that, and so we expect to see some good numbers out of them, even in the first quarter where this last year and I think the previous year before that, that may not have been the case. We are encouraged by that. But that is not what they are all about. I want to be sure to add.

They have a prospects for growth, that management team has done an excellent job of focusing on improved margins and lower costs. Being deployed to produce the business that they are doing. And we are encouraged more by those kinds of things, and what happens in the marketplace and what happens with weather are really other factors. But I think the encouraging signs that we are seeing in the fourth quarter and as we move into 2014, is really a great level of management focus on the things that matter most to make that business successful.

Hey Chris, thank you, I think that we will move along. Appreciate you. Thanks.

Thanks.

And our next question comes from the line of Justin Yagerman, please go ahead.

Hey, good morning, guys. It is Rob on for Justin.

Hi, Rob.

Hey Judy, when I think about kind of the cadence for volume growth as I look out, the month of December we saw an acceleration of the tonnage growth following the implementation of the new Teamster contract. Obviously weather has continued to be a challenge thus far in January. But should we think about revenue growth coming a little bit more from the tonnage side, given the opportunities you now have with the new cost structure?

I think we certainly have the ability to grow our business, and it helps us to have the cost structure in a better place relative to where it was. Where that can help is with continuing conversations that we have with customers that we already do business with, and it can also help us as we are positioning ourselves to be able to grow with new accounts that come our way. So it certainly improves the situation. We are very mindful that we want the improvements in the contract to hit the bottom line, though. And so we are very focused on bringing on the right kind of business, again understanding where our costs are is one component, but typically we are pricing our business based on what is happening in the marketplace and it is less about the actual costs involved. But it does help to position us as we are having conversations with customers, and again, just keep in mind we want to be sure that the savings that we gain from the contract end up hitting the bottom line, and that is a focus as well.

Right. Totally understand with regard to improving the bottom line. One of the places which kind of really stood out to us in the fourth quarter was the non-asset revenue growth. We have seen cash kind of build throughout the course of the year. I think it was couple quarters ago you guys had put out a $1 billion top line target for the non-asset businesses over time. How should we be thinking about uses of cash, because it doesn't sound like CapEx is going to be that cumbersome in 2014 relative to the D&A? Are acquisitions an opportunity to redeploy cash as we look out to help accelerate that non-asset business growth?

Absolutely. Our focus is growing those businesses, gaining scale in those businesses, and if we have the ability make an acquisition that helps us do that, that is something that is on our radar screen, and would be a priority for us if it had the right elements in order to advance those business growth stories going forward. There is opportunity that we have that we are looking at, particularly in the ABF Logistics business, and to some extent with Panther, and then even on a smaller side with the FleetNet business. So we have acquisitions, targets on our radar screen, and that is one use that we could make of our resources that are on our balance sheet.

But I also want to suggest to you that we have organic opportunities as well, and we are going to be looking at those to advance the growth plans that we have. And so it is really not about one strategy or one approach, it is really about multiple fronts, trying to advance the growth of the emerging businesses. We were really encouraged for that group of businesses to be 25% of our revenue this quarter. And I see that increasing going forward.

Thanks a lot, Rob, appreciate you.

Appreciate the time, thanks.

And our next question comes from the line of Todd Fowler. Please go ahead.

Great. Good morning. Congratulations on everything that you accomplished last year, and I guess welcome back.

Thanks a lot.

It has been a while since we have done this. I wanted to start with the tonnage trends during the quarter, and going back to what you saw into December. Do you have a sense of how much of that is related to having some visibility post finalizing the contract, versus what is happening within the industry? And then the same sort of thing going into January, obviously there is the weather and the comparison issues, but how do you feel like underlying freight activity is, if you strip out some of the Company specific elements, as well as the weather?

Well we really don't have the specific details to parse that out. But I will tell you that we saw better economic conditions in the month of December. That was the case sort of regardless of what happened with the contracts. But we were also able to have better conversations with customers as we finalized the contracts. We had a number of customers that wanted to have a better conversation with us, bring more business to us, as we finalized the contract, and that is certainly a factor in the fourth quarter results as well. But I think there was some news out today about the broader economy in the fourth quarter, and I think that looks pretty good. And so that was definitely a factor.

Okay. That helps. And then the second one that I wanted to ask, thinking about all of the stuff that you have gone through over the last year, Judy, how do you think about the business strategically over the next several years? Is the focus on LTL business to really drive the profitability, and get back to the historical operating ratio or the historical margin rate, and then grow the asset light business, or do you look at the LTL business as having the potential to grow going forward? I guess how are you thinking about the business now that you have positioned it, or gotten through some of the overhang issues over the next couple of years?

Well, it is on our list to accomplish, to restore the historic operating results of ABF, but one way to do that is to grow the Company, and we do city that there are growth opportunities. We are seeing business come our way that is pure LTL business that runs in the network. There is a value to that asset-based network, and there will continue to be in the future. The higher percentages of growth are going to come from the non-asset-based business, because those markets are growing and because our presence in those markets are lower and emerging.

And so I think that is really what I expect to see is growth in all of our businesses, but an acceleration of growth in those emerging businesses, and over time you will see those businesses become a greater part of our total revenue and profit, and really that is the long-term strategic objective. And it is because that balance and the ability to collaborate among our business units for the betterment of our customers, that is really what we are trying to accomplish, and that is what we are hearing from some customers that they want to see us to do.

So being a year into Panther, down see obviously this was a good environment for Panther during the quarter but is there evidence of the synergies between the businesses, as you anticipated when you did the acquisition, is there more opportunity going forward?

There is more opportunity going forward, and there is much more there than what we envisioned even when we bought the company. We are very excited about the interaction again to the benefit of the customer between what is going on with ABF Freight, ABF Logistics, and Panther

Appreciate you. Thanks a lot.

Thanks a lot, guys. Okay, bye bye.

(Operator Instructions). Our next question comes from the line of Matt Brooklier. Please go ahead.

Hey, thanks, good morning.

Hi, Matt.

how are you?

Doing well, how are you?

I am doing good. Wanted to ask kind of another demand question. December felt, its sound like it felt like a good month. I am curious to hear if in a carried through into January? We are hearing from the truckload carriers that they saw pickup in December, and it has lasted through the end of January. So curious your thoughts on kind of the current market environment from a demand perspective?

It is my sense that the business environment is better, but I can tell you with the number of days that have been affected by weather, it is very difficult to tell what the trend line looks like. For us to say that we have an estimated $4 million negative effect from weather, that is a big, big number. And it is because of the number of days in January that have been affected all across the country. On the flip side, our FleetNet business has been doing great. They have had, to give you the full extent of the weather, they have had record-setting days, I think three or four times in the month of January for the Company, and so that is kind of another data point. We have also seen some positive effects of the rough weather on Panther's business as well, so we do have some offset to the negative effect on ABF in January, but it is really hard to tell. But my general sense is that the business environment would be better if we could exclude the effect of weather.

Okay. That is helpful. And then just as my follow-up, is there any way I can get a sense for potential benefit you may have realized during the quarter from maybe some freight diversion from the competitors? They also went through a contract negotiation process.

We really haven't seen any effect from that. You might have expected that, but there isn't anything material to mention as far as that goes.

Okay. Appreciate the color.

Thanks.

And our next question comes from the line of Brad Delco, please go ahead

Good morning, Judy, Michael, David.

Hi Brad.

Good morning.

Judy, I think this question was somewhat asked, so I may want to ask it a different way. Now that you have this lower cost structure, it seems like there are questions around growth. I guess what I am sort of trying to get at, is do you feel like, Arkansas Best's network will see any shift over the course of the next year, couple of years, as you realize you are now more competitive in newer lanes because of your better cost structure, and have you seen any change in the network or expect to see change to the network as a result going forward?

The answer is yes, we will see some change. Part of what we negotiated gives us more flexibility to better address customer needs. So we are going to see some improvements over time in service, part of that relates to our ability to use purchased transportation as a component of how we deliver customer shipments. With the network change, our goal in that is improve transit times, to enhance our operational efficiency, and greater density in our network. And all of that is good for customers because we are able to better serve them from a transit time standpoint, a service time standpoint. But it is also good for the cost structure, because it will help us to keep our costs at a lower point than even they are today.

Those kind of things improve the health of the Company, improve our ability to be at the market, properly price break competitively, and so it does put us in a better position to grow. The reason I said what I said about making sure that those efficiencies and those improvements hit the bottom line is because it is important to us to improve our earnings. Our earnings outlook for the Company needs to improve, and has been in a rough place in the past several years and so that is a desire of ours but that is not to say that we won't be able to better evaluate business opportunities that come our way, and make a choice to take on business, and have it be profitable for us because we have reduced our cost structure.

Brad, I appreciate you.

Thank you.

Thanks a lot.

Our next question comes from the line of Thom Albrecht. Please go ahead

I think that might be me. This is Thom Albrecht.

Hi, Tom.

Bum Phillip's son here. I have got a couple of questions. Judy, it has been the first quarter of 2008 since you last made money. Because there is so much change going on in the Company, what do you think is the likelihood that you are able to be profitable in Q1? And I have a related follow-on.

Well, it is certainly our goal to be profitable in every quarter of the year. So we do try to plan our situation so that we can accomplish that. I can tell you the effects of weather playing a part in that, it that is hard to predict what the impact of it will be.

Sure. And that is fair. And then the related question is when I look at ABF's fourth quarter salaries, wages and benefits just under $259 million, can you give us a sense of what that would have been had the contract not gone into effect about halfway through the quarter? How much was the actual dollar savings?

Well, I think there are a lot of factors that go into that. I mean we have given the components I believe that are necessary to model that, with the lower costs that we have from the wage rate and the full effect of the vacation adjustment that was made and set out. And so whenever you look at the pieces of this business, it is really difficult to parse out what relates to the contract, what relates to productivity improvements, and that sort of thing. We think that the impact on the quarter, certainly would have been more if we had the contract in place as you entered the quarter in October. And so, I think you have the pieces in order to be able to work through that from your model standpoint. And we have given the range of the savings that we expect for a full year.

Right. Since it was mid-quarter and we never know quite the number of hours, I was just kind of hoping for a little bit more help there. Okay. Thank you.

Okay. Thanks a lot, Thom.

And our nest question comes from the line of David Ross. Please go ahead.

Yes, good morning, everyone.

Hi, Dave.

Judy, you talked about savings in the contract hitting the bottom line and just I guess to follow up on Mr. Albrecht's question there, about $15 million a quarter was expected in the annual run rate. Is it fair to say that less than half of that was realized in the fourth quarter, or would it be proportional in terms of kind of 65% almost would have been realized? Or was there some kind of delay I guess in the cost savings?

I think this gets back to the kind of the disclosure that we made about this. We said that the contract savings would be in a range of $55 million to $65 million,and that includes the effect of the wage rate reductions. It includes the effect of the vacation adjustment. And it includes some effect from the other changes which we anticipate will occur more over time.

There are a number of things from an operational efficiency, work real flexibility with the use of purchased transportation, those are all factors that will reveal themselves in the numbers over time, and perhaps more so in busier times of the year than in the weaker later fourth quarter months and into the first quarter. And so what I would suggest to you is the numbers that we saw in November and December were in line with what we felt that they would be, but we also know that there is going to be more to add to that because of the additional contract provisions that we will be able to implement more as we go into 2014.

Got it. That make a lot of sense. And then last question, has there been an increase in Worker's Comp since the ratification of the deal? A lot of these in these union contracts, people feel that their wages get taken away, all of a sudden their back starts hurting a little bit more?

No, what I saw in the fourth quarter was that we were at our 5 and 10-year averages. So no, we didn't see anything that was unusual in the fourth quarter.

That is good news. Thanks.

Thanks Dave.

Our next question comes from the line of Ken Hoexter. Please go ahead.

Hey, good morning. I guess I will take that one.

David, we are talking to a bunch of people we don't know on this call.

Exactly.

It is potluck on who gets called. Judy, in your printed comments, you noted it sounded like maybe a bit of a slow-growing economy expectations. Just anything to that, because it sounds like you have been talking about things picking up in December and January?

Well, I think that we have seen better results toward the end of the year. But our general view of what we will see from an economic environment standpoint is relatively slow growth. I mean it is just the kind of the structural issues that the country faces, and those decisions that are being made about those. We just don't, when we look out and try to see some catalyst for something greatly improved from an economic environment standpoint, it is just hard to see that. Now we could have quarters or periods where there is a better result in that, and I think the fourth quarter tended to be one of those. But when you are looking out and you are a planning person, and you are saying, what do I think the economy is going to do, yes, we think it is better but do we expect there to be a high level of growth from the economy, I don't think that really anyone has that expectation. And so we certainly don't plan our business based on that, although we have more than ample opportunities to execute on to aggressively grow our business.

Yes. I just wanted to make sure that I was reading that. I know we are limited on time. So I am excited about the changes here from the contract with, I like what you mentioned increased transit times and density, but maybe can you talk a little bit about what does shutting offices do for you? How does that conflict with getting more regional? Do you view the contract a little bit more negative now, in that you have a half the a rate decreases your competitor did, and they are going to go away in a few years, and it sounds like they have just extended those rate increases for another five or six years at these levels. Does that come back to haunt you in terms of having a higher cost relative to the industry?

Let me answer your first question first. When we think about the consolidation of those facilities, it is on the forefront of our mind to make sure that we provide a high level of customer service, and so that is part of this. We want to improve the service or transit times for our customers. We also see the opportunity for operational efficiencies and greater density, which bodes well for the cost structure and for our bottom line. We will see those roll out as we implement the change of operations. So that is the goal there.

With respect to YRC and the contract extension they have, we were not surprised that they were able to accomplish that. It is something that we felt was that they could accomplish, and certainly they did. We have been competing against that lower cost structure that they have had for some time. And it really hasn't had much of an impact on us, other than to say that we continue to gain business, not lose business in that regard. So it is just something that we have as a competitive issue going forward, but there are numerous competitive issues out there that we deal with. And so we like how we are positioned. We like the service offerings that we have, and we like the conversations that we are having with customers about growing business.

Thanks a lot Ken.

Thanks Dave. Thanks Judy.

Our next question comes from the line of Art Hatfield.

Good evening, guys. This is Derek.

Hi, Derek.

Hey, I just wanted to talk a little bit more about the network optimization. How far along are you in that process? As I look at the 30 terminals, are those effectively the low-hanging fruit in that process and you have more room to run in that, or you how should we think about that? And then as would you look at overall network optimization, what kind of leverage do you have to pull there? Is there anything that you can do on the technology side? Just any color there?

Yes, the proposed change or the change it is no longer proposed, I guess it is the final change that was approved is part of a dynamic network analysis that was initiated beginning in 2013, and it is really a part of a larger evaluation, a part of a larger process that we are going through there. I guess you could call it the low-hanging fruit so to speak, because it is what we did first, but it is nonetheless important and significant in the way that we are able to serve customers. So we like what we have done there. We expect to be doing more, but the truth is we want to see how these changes that we have just been allowed to implement, how they go and what results they produce, and then we will go from there and continue on the path of our network becoming appropriate for the business that we have. But we see that as something that is ever changing.

We have the ability to model what is happening with customers' business and the necessary networks to serve that, and so it will be a continuation that goes on for many years to come, and probably forever. We do use technology to our advantage, and we see a lot of opportunities to be able to do that going forward. And it does create efficiencies in our business. And we are excited about the things that we can deploy there to improve the efficiency of the business. We compete against companies that have deployed these types of technologies. We have ourselves in the past, it is an ever-changing marketplace that requires you to be able to serve your customers well with the most efficient cost structure. And that is part of it. So we are glad that we have continued to have opportunities to look out along those lines.

Derek, appreciate it.

Appreciate it, David, thanks.

Thanks a lot.

Our next question comes from the line of Scott Group. Please go ahead

Thanks, morning, guys. Judy, I think you mentioned pricing renewals in the 4% range right now, and weight per shipment is coming down. I don't know if you have a view on what is driving that. But when I think about those two things together, should we be thinking about yields this year growing in that mid-single digit range? Is that a fair expectation, or is there something else that make that tougher?

Hi Scott. As we deal with about 4,000 pricing deals a month. And our approach to that is to improve our profitability of the Company in every one of those that we do. The 4% is a recent indication of what we are able to gain. That is on our most price-sensitive business, so we are certainly trying to accomplish those levels in the pricing deals that we do. But by no means can we guarantee a result there, because it is all about the marketplace. It is about what you are able to have in the customer conversation and the value that we provide to those customers. But we feel that we are in command of all of the facts to make a good decision there. And it is certainly our desire to have improved profitability and one of those elements would be to increase prices. As the value that we provide customers is recognized by them.

Alright. And then just with that, to that point, big picture when you went into the contract renegotiations, you talked about we want to get Arkansas Best back to historical profitability levels, and now you have got the contract done, and you are making progress on the terminals. What is your level of confidence or visibility towards getting back to those levels of profitability over the next couple of years?

What I look at is the opportunity that is there. Which the opportunity is there to improve our margins to those historic levels. There are several elements to that, and what I would suggest to you is that we are on track. It will take some time but we are on track.

Hey, Scott, we are going to try to move along. I have a few more I want to try to get in real quick.

Alright, sure. Thanks guys.

Our next question comes from the line of Tom Wadewitz. Please go ahead.

Yes, good morning. I wanted to see, is there any kind of broad comment you could provide on the capacity situation at the terminals prior to the rationalization, and what that might look like after the rationalization?

Well, I think it is the same story and unfortunately it is not one answer. We do have capacity at some of our facilities, and we have the ability to take on more business. In other facilities, it is tighter and I think that when the dust settles on the implementation of this changeof operations, our capacity will obviously be less, but it will be more appropriate to serve customers. So there just is not one answer to that. Will we at the end of the implementation of this first phase be able to take on more business? Yes. I mean it is our plan to be able to grow the business, and to do so with the capacity that we have in the facilities that remain as a part of the network post change of operations implementation. But again, there is never one answer to that. It is very difficult to give you any kind of color without knowing kind of the individual stories.

Okay. But when you do your scenario analysis and looking at the network, if you see a cyclical improvement which hopefully that will materialize and kind of see follow through on that, you don't have an issue in handling that if the tonnage ends up being stronger and there is a cyclical upturn as capacity reduction, it doesn't prevent you from handling that, or from handling that efficiently, is that a fair way to look at it?

I think that is right. I mean what you stated is right. We shouldn't have any trouble with that. In the areas where we would anticipate that, we will have a plan for if it is necessary to add doors to that facility, and really, to some extent what our capacity is about in our business is our equipment and our people, and those are very flexible and very variable, and can be adjusted very quickly to deal with increased business.

Thanks, Tom, appreciate you.

Thanks, David.

And our next question comes from the line of Anthony Gallo. Please go ahead.

Good morning, thank you. Congratulations on all of the accomplishments.

Thanks, Anthony.

Thanks.

My question is on the potential for a reversal of some of the non-union wage and benefit concessions that were made. I am thinking about it in the context of better pricing, profitability improvements from the facility consolidation set against the fact that the union contract eventually has some wage and benefit escalations as it matures. How should we think about that? You have got some good things going on in the profitability side. You have an eventuality with the wage and benefit on the union side, so how do we think about maybe the potential to reverse some of the non-union concessions? Thank you.

I think when we think going forward we are not thinking of a reversal of that at all. It is really just about normal increased levels in non-union compensation and benefits. One of the bigger items there that in 2013 was the freeze of the non-union pension plan, and that is not going to be reversed. That is finished. We do have the defined contribution plans to contribute to. We began doing that for the pension participants in the second half of last year, and we are already doing that for the others that were never a part of the pension benefits to begin with. And so we expect that will continue, but that is not an abnormal increase level. It is obviously the decision that we made, was to deliver our retirement benefits with a lower cost structure than we were seeing with the defined benefit pension plan.

Makes sense.

I would say just more kind of business as usual normal levels of increase in that category.

And when does the change start for the union wage and benefit inflation?Is thatJuly?

In July.

Okay, great. Thank you. Thank you, David.

Thanks a lot. We will take one more question.

Our next question comes from the line of Jeff Kauffman. Please go ahead.

Thank you for taking my question, and congratulations on the strong results.

Thank you Jeff.

Most of my questions were asked by Hoexter and Bum Albrecht, so let me come at you a different way. There is tremendous opportunity for you right here, Judy, and I know you said the additional changes you are going to make, you are going to play out over the next two to three years. But could you kind of give me an idea if I go out two or three years and I look at Arkansas Best, what is going to be different versus what I am seeing today?

Well, as I managed earlier, we expect to see a more balanced revenue source. You are going to have the ABF Freight revenue source and we expect that to grow, but we don't expect to grow at the rapid rates that the emerging businesses will grow. And so we expect to see more balance, a greater portion of the revenues coming from our emerging businesses. This is really not just because we want to do that ourselves internally. It is more about what customers are demanding, and we see a lot of the customers that we know having needs that are beyond the core LTL business. They continue to have the needs in the core LTL business, but they have other needs as well. We are seeing our growth come from being able to serve those needs with the addition of Panther into the mix of our companies. We have been able to even further that service offering to our customers.

And so we feel good about the opportunity that we have for our Company in say two or three years to be a company that customers look at and say that we have the services they need, and that we are able to deliver those in a single source or single point of entry way for them. And that is our goal. They are good conversations. This is not about inventing something that we are not doing already. It is just about better execution from the sales standpoint, and operational excellence when we deliver these services to customers. So we expect to see a better balanced Company, a more stable company as a result, and one that also serves customers better.

Okay.

We have gone over. I can get you offline

Yes, absolutely.

Thanks, Jeff.

Thanks a lot. I think that concludes our call. We appreciate your interest in Arkansas Best Corporation, and our call is over now. Thank you very much.

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.