Arkansas Best Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.30.14 | About: ArcBest Corporation (ARCB)

Arkansas Best (ABFS) Q4 2013 Earnings Call January 30, 2014 9:30 AM ET

Executives

R. David Humphrey - Vice President of Investor Relations

Michael E. Newcity - Chief Financial Officer and Vice President

Judy R. McReynolds - Chief Executive Officer, President and Director

Michael R. Johns - Vice President, General Counsel and Corporate Secretary

Analysts

William J. Greene - Morgan Stanley, Research Division

Christian Wetherbee - Citigroup Inc, Research Division

Robert H. Salmon - Deutsche Bank AG, Research Division

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Matthew S. Brooklier - Longbow Research LLC

A. Brad Delco - Stephens Inc., Research Division

Thomas S. Albrecht - BB&T Capital Markets, Research Division

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Ken Hoexter - BofA Merrill Lynch, Research Division

Derek Rabe

Scott H. Group - Wolfe Research, LLC

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Arkansas Best Corporation's Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, January 30, 2014.

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

R. David Humphrey

Welcome to the Arkansas Best Corporation's fourth quarter 2013 earnings conference call. We'll have a short discussion of the fourth quarter and full year results, and we'll 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 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 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.

Michael E. 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 and 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 trend of unacceptable losses and implementing a new 5-year labor contract with the Teamsters. Judy will speak in more detail about the year's highlights, but, overall, we were 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'd 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 fourth quarter 2013 net income was $0.38 per share. Excluding adjustments for nonoperational items in the quarter, fourth quarter 2013 net income was $0.31 per share. The nonoperational 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 3 items included here: First, a positive adjustment to ABF Freight's 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.

And lastly, a pension settlement charge associated with the July 1, 2013 freeze of benefit accruals under our nonunion 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 had a $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 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 nonunion defined benefit plan, the planned costs equated to $6.3 million in 2013, all of which occurred in the first half of the year before the plan freeze, compared to $16.6 million in 2012. 2013 also includes $5.9 million of costs related to a discretionary contribution into our nonunion 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 rate -- tax rate includes the effects of the previously mentioned net reductions and valuation allowances on deferred tax asset, 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 2 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 5-year term loan associated with the Panther acquisition and $29 million of capital leases and notes payable, primarily on ABF Freight's equipment. The composite interest rate on all of our debt is 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's fourth quarter 2013 total billed revenue per hundredweight 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 year's fourth quarter. And ABF Freight's average length of hall 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 fourth quarter of 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 experience throughout the first quarter of 2013.

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 revenues 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% [ph] and full year revenue by 58%. Freight Net, our emergency and preventative maintenance company, experienced double-digit growth in revenues and improved profits in both the fourth quarter and during the entire year.

Fourth quarter revenue at our household goods moving services company, Albert, was comparable to last year. For full year 2013, Albert 6% revenue increase resulted in an improvement in annual operating income approaching 2x 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 that may accounted for 19% and 12% of consolidated revenue, respectively. This year's revenue total illustrate the success of our corporate growth strategy to offer a comprehensive array of logistics services to our customers.

Now, I'll turn it over to Judy for her thoughts about our quarter.

Judy R. McReynolds

Thank you, Michael, and good morning, everyone. As Michael said earlier, we faced a number of challenges and opportunities heading into 2013. I'm happy to report that the #1 achievement for the year was a successful ratification and implementation of our new 5-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'm 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 regard 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 continue 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 operations 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 standalone 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 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 continued to be affected by investments we've 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 with 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 services that compliment 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 offer solutions to the most critical shipping needs in the industry, including the renowned ground expedite service, air forwarding, air charter, signature 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 the period of business growth.

Albert experienced a slight increase in fourth quarter revenue, despite handling fewer shipments, a softer housing market to the first half of the year -- compared to the first half of the year and the mix of business handled by this division contributed to lower fourth quarter margin. I am encouraged by Albert's full year results. The combination of revenue growth and significant improvement in operating income offers the basis for continued growth and profit in the future.

A combination of increased freight tonnage moving at better prices added to fourth quarter probability at ABF Freight compared to last year. Economic stability and increased consumer demand provided over 5% more freight shipments in 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 cost, 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 revenue, 2013's 0.45% figure represents the 17th year in a row of improvement in this important measure.

The stability we've 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 Teamsters leadership was held last week, and I'm pleased to report that ABF Freight's proposal was approved. Implementation of the plan can 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're energized by the solid growth prospects of 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'll let Michael finish up with some additional financial information.

Michael R. Johns

I'll wrap things up with a few details about our CapEx. In 2013, Arkansas Best total net capital expenditures equated to $24 million, including approximately $3 million of city and road tractors at ABF Freight. Because the actual implementation at ABF Freight 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 cost on fixed assets equaled $84 million.

For 2014, we expect Arkansas Best net capital expenditures to be in a 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 cost 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.

R. David Humphrey

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Bill Greene.

William J. Greene - Morgan Stanley, Research Division

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 the weather in the 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 you can kind of help us think through how to adjust our thinking on seasonality for first quarter?

Judy R. McReynolds

Well, Bill, we really, as you know, don't give guidance about that. I think the normal progression of fourth quarter and the first quarter, the operating ratio is on average, increased about 4 points. Obviously, the factors as you mentioned are going to be the fact that you have an improved results from the lower cost structure associated with the labor contract. We also will have some effects 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're giving you our best estimate, but I know that they're 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's even going to be hard for us to tell what the first quarter should look like relative to our own forecast and our own expectations that we had prior to these weather events.

William J. Greene - Morgan Stanley, Research Division

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

Judy R. McReynolds

Yes, I think, I mentioned that there was relative stability in the pricing environment. And I think just based on the links of time that's 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've had good increases on our contract renewals as well recently. So that's a positive sign.

Operator

And our next question comes from the line of Chris Wetherbee.

Christian Wetherbee - Citigroup Inc, Research Division

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

Judy R. McReynolds

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's the piece that you asked about. From a competitor standpoint, we're really seeing sort of 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 much impact of that as you would expect. What we are focused on is our own stability and our own company. We've had, just last year was an interesting year for us, really beyond last year into 2011, 2012, we were facing some of the same issues that we fought to completion in 2013. So our sales force is very excited to go into 2014 with all the services that we have to offer and with the story that we have stability in our business, and that's a very encouraging scenario for our sales force. And so they like their position competitively and they're excited about going out there and being successful.

Christian Wetherbee - Citigroup Inc, Research Division

Okay, that makes sense. And 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 sort of the first quarter and second quarter? Is there overall probability and business activity at Panther?

Judy R. McReynolds

Well, I think when you think about Panther, the normal year would include a better second and third quarter. But what's interesting is that when you have winter weather effects like we've 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've been seeing that. And so we expect to see some good numbers out of them, even in the first quarter where just last year, and I think the previous year before that, that may not have been the case. And so we're encouraged by that. But if that's not what they're all about, I want to be sure to add because they have 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're doing and we're encouraged more by those kinds of things. And what happens in the marketplace, and what happens with whether, are really other factors. But, I think, the encouraging signs that we're 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.

Operator

And our next question comes from the line of Justin Yagerman.

Robert H. Salmon - Deutsche Bank AG, Research Division

It's Rob on for Justin. 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 gross line 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?

Judy R. McReynolds

Well, 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're very focused on bringing on the right kind of business, again, understanding where our costs are as one component, but typically, we're pricing our business based on what's happening in the marketplace and it's less about the actual costs involved. But it does help to position us as we're 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's a focus as well.

Robert H. Salmon - Deutsche Bank AG, Research Division

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've seen cash kind of built throughout the course of the year. I think it was a couple of quarters ago, you guys have put out $1 billion topline 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 DNA? Are acquisitions and opportunity kind of redeploy cash as we look out to help accelerate that non-asset business growth?

Judy R. McReynolds

Absolutely. Our focus is growing those businesses, gaining scale in those businesses. And if we have the ability to 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 have the right elements in order to advance those business growth stories going forward. There's opportunity that we have that we're looking at, particularly in the ABF Logistics business and to some extent with Panther, and then even on the 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're going to be looking at those to advance the growth plans that we have. And so it's really not about one strategy or one approach, it's 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. So -- and I see that increasing going forward.

Operator

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

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

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's happening within the industry? And it seems sort of thing going in to January, obviously, there's the weather and the comparison issues, but how do you feel like underlying freight activity is if you're trying to strip out some of the company specific elements, as well as the weather?

Judy R. McReynolds

Well, we really don't have the specific details to parse that out, but I'll tell you that we saw a better economic condition in the month of December. That was the case sort of regardless of what happened with the contract. But we're also able to have better conversations with customers as we finalize the contract. We had a number of customers that wanted to have a better conversation with us, bring more business to us, as we finalize the contract and that 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 looked pretty good. And so that was definitely a factor.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay, that helps. I mean, then the second one that I wanted to ask, thinking about all the stuff that you've gone through over the last year. And Judy, how do you think about the business strategically over the next several years? I mean, is the focus on the 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 businesses? 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've positioned it or you've gotten through some of the overhang issues over the next couple of years?

Judy R. McReynolds

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 see that there are growth opportunities. We are seeing business come our way that is pure LTL business that runs in the network. There's a value to that asset base network and there will continue to be in the future. The higher percentage of the growth are going to come from the non-asset-based businesses because those markets are growing and because, our presence in those markets is lower and emerging. And, so I think that's 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's the long-term strategic objective. And it’s because that balance and the ability to collaborate among our business units for the betterment of our customers, that's really what we're trying to accomplish, and that's what we're hearing from customers that they want us to do.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

And so being you're into Panther, I mean, do you see -- obviously, this was a good environment for Panther during the quarter, but are there -- is there evidence of the synergies between the businesses, as you anticipated, when you did the acquisition? Is there more opportunity going forward?

Judy R. McReynolds

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

Operator

[Operator Instructions] And our next question comes from the line of Matt Brooklier.

Matthew S. Brooklier - Longbow Research LLC

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

Judy R. McReynolds

Yes, it's my stance that the business environment is better, but I can tell you with the number of days that has been affected by weather, it's very difficult to tell, what the trendline looks like. We've -- for us to say that we have an estimated $4 million negative effect from weather is -- that's a big, big number and it's because of the number of days in January, that have been affected all across the country. On the flipside, our FleetNet business has been doing great. They have had -- to give you the full extent of the weather, they've had record-setting days. I think, 3 or 4x in the month of January for the company. And so that, that's kind of another data point. We've also seen some positive effect 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's really hard to tell. But my general sense is that, that the business environment would be better if we could exclude the effect of weather.

Matthew S. Brooklier - Longbow Research LLC

Okay, that's helpful. And then, just as my follow-up, is there any way to get a sense for potential benefit? You may have realized during the quarter, for maybe some freight diversion from the competitors, they also went through a contract negotiation process?

Judy R. McReynolds

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

Operator

And our next question comes from the line of Brad Delco.

A. Brad Delco - Stephens Inc., Research Division

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

Judy R. McReynolds

The answer is yes, we'll see some change. I mean, part of what we negotiated gives us more flexibility to better address customer needs, so we're going to see some improvements over time and in service, part of that relates to our ability to use purchase transportation as a component of how we deliver customer shipments. With the network change, our goal in that is improve transit time to enhance our operational efficiency and greater density in our network. And all of that, is it's good for customers because we're able to better serve them from a transit time standpoint -- a service time standpoint, but it's also good for the cost structure because it will help us to keep our cost at a lower point than even they are today. Those kinds of things improved the health of the company, improved our ability to be at the market properly, price freight 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's 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's the desire of ours, but that's 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.

Operator

And our next question comes from the line of Tom Albrecht.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Got a couple of questions. Judy, it's been the first quarter of 2008, since you last made money because there's so much change going on in the company. What do you think is the likelihood, you're able to be profitable in Q1? And I have a related follow-on.

Judy R. McReynolds

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

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Sure, and that's fair. And then, a 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 contract not gone into effect about halfway through the quarter? How much was the actual dollar savings?

Judy R. McReynolds

Well, I think, there are a lot of factors that go into that. I mean, we've given the component, 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 that out. And so, whenever you look at the pieces of this business, it's 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 was -- I mean, it certainly would have been more if we'd have 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've given, the range of the savings that we expect for a full year.

Thomas S. Albrecht - BB&T Capital Markets, Research Division

Right. I just -- 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, but...

Operator

And our next question comes from the line of David Ross.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Judy you talked about savings in the contract hitting the bottom line, and just, I guess, the 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, that you're going to realize more.

Judy R. McReynolds

Again, 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 the range of like or 45 -- excuse me $55 million to $65 million and that includes the effect of the wage rate reduction, it includes the effect of the vacation, adjustment and it includes some effects from the other changes, which we anticipate will occur a more over time. There's a number of things from an operational efficiency, work real flexibility, the use of purchase transportation, those are all factors that will reveal themselves in and the numbers over time and perhaps more so in busier times of the year than in the weaker layer fourth quarter months and then 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's going to be more to add to that because of the additional contract provisions that we'll be able to implement more as we go into 2014.

David G. Ross - Stifel, Nicolaus & Co., Inc., Research Division

Got it, that makes a lot of sense. And then, last question, has there been an increase in workers' comp, since the ratification of the deal? A lot of times in this union contracts, people feel that their wages get taken away, all of a sudden, backs are turning a little bit more?

Judy R. McReynolds

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.

Operator

And our next question comes from the line of Ken Hoexter.

Ken Hoexter - BofA Merrill Lynch, Research Division

Judy, in your official -- in your printed comments, you noted, the sounded like a maybe a bit of a slow-growing economy expectations, just anything to that? It sounds like you've been talking about things picking up in December and January.

Judy R. McReynolds

Well, I think that we've seen better results towards the end of the year, but our general view of what we'll see from an economic environment standpoint is relatively slow growth. I mean, it's just the kind of the structural issues that the country faces and those decisions that are being made about those. We just don't -- there's -- when we look out and try to see some catalyst or something greatly improved from an economic environment standpoint, it's 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're looking out and you're a planning person and you're saying, what do I think, the economy is going to do? Yes, I think -- we think, it's better, but do we expect there to be a high level of growth from that 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're -- we have more than ample opportunities to execute on to aggressively grow our business.

Ken Hoexter - BofA Merrill Lynch, Research Division

Okay, yes, I just want to make sure I was reading that right, but I know we're limited on time. So when you -- 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 those shutting offices do for you? How does that conflict getting more regional? And then, do you view the contract maybe a little bit more negative now and that you're got to have to rate decreases, your competitor did, and they're going to go away in a few years and it sounds like they've just extended those rate increases for another 5, 6 years at these levels. So does that come back to haunt you in terms of having a higher cost relative to the industry?

Judy R. McReynolds

Well, with the way, I think, I want to 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's part of this, we want to improve the service, our transit times for our customers. We also see the opportunity for operational efficiencies and greater density, which is -- which bodes well for the cost structure and for our bottom line. We'll see those roll out as we implement, the change of operation. So that's 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's something that we felt was -- that they could accomplish and certainly they did. We've been competing against that lower-cost structure, that they've had for some time, and it really hasn't had much of an impact on us other than to say that we continued to gain business, not lose business in that regard. So it's just something that we have as a competitive issue going forward, but there's numerous competitive issues out there that we deal with. And so, we like how we're positioned. We like, the service offerings that we have. And we like, the conversations that we're having with customers about growing business.

Operator

And our next question comes from the line of Art Hatfield.

Derek Rabe

This is Derek. 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 this 30 terminals, are those effectively the low hanging fruit in that process and you have more room to run in that? Or how should we think about that? And then, as we look at just overall network optimization, is there -- what kind of leverage, you have to pull there? Is there anything that you can do on the technology side? Just any color there.

Judy R. McReynolds

Yes, the proposed change or the change is no longer propose. I guess, the final change that was approved is part of a dynamic network analysis that was initiated beginning in 2013, and it's really a part of a larger evaluation, a part of a larger process that we're going through there. I guess, you could call it, the low hanging fruit, so to speak, because it's what we did first, but it's nonetheless important and significant in the way that we are able to serve customers. So we like what we've done there. We expect to be doing more, but the truth is, we want to see how these changes that we've just been allowed to implement, how they go and what results they produce. And then, we'll 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's 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 lots of opportunities to be able to do that going forward and it does create efficiencies in our business and we're excited about the things that we can deploy there to improve the efficiency as a business. We compete against companies that have deployed these types of technologies. We have ourselves in the past, it's an ever-changing marketplace that requires you to be able to serve your customers well with the most efficient cost structure, and that's part of it. So, we're glad that we've continued to have opportunities to look at along those lines.

Operator

Our next question comes from the line of Scott Group.

Scott H. Group - Wolfe Research, LLC

Judy, I think, you mentioned pricing renewals in the 4% range right now and weight per shipments coming down. I don't know, if you have a view on what's driving that. But when I think about those 2 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 makes that tougher?

Judy R. McReynolds

Well, as you know, we deal with about 4,000 pricing deals a month and our approach to that is to improve our profitability at the company in every one of those that we do. The 4% is a recent indication of what we're able to gain, that's on our most price-sensitive business. And so, we're certainly trying to accomplish those levels in the pricing deals that we do, but by no means, can we guarantee our results there, because it's all about the marketplace, it's about what you're able to have in the customer conversation and the value that we provide to those customers. But we're -- we feel that we're in command of all the facts to make a good decision there and it's 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.

Scott H. Group - Wolfe Research, LLC

Right, and then with just with 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 got the contract done and you're making progress on the terminals, do you have -- what's your level of confidence or visibility towards getting back to those levels of profitability over the next couple of years?

Judy R. McReynolds

Well, what I look at is the opportunity that's there, which the opportunity is there to improve our margins to those historic levels. There's several elements to that. And what I would suggest to you is that we are on track. It will take some time, but we're on track.

Operator

And our next question comes from the line of Tom Wadewitz.

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

So I wanted to see, is there any kind of broad comment you could provide on the capacity situation to terminals prior to the rationalization and what they might look like after the rationalization?

Judy R. McReynolds

Well, I think, it's the same story and unfortunately, it's 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's tighter and I think that, when the dust settles on the implementation of this change of operations, our capacity well obviously, be less, but it will be more appropriate to serve customers. And so, there is 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's 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, that is there's never one answer to that. It's very difficult to give you any kind of color without knowing kind of the individual stories.

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division

Okay, but when you do your scenario analysis and looking at the network, if you see a cyclical improvement, which we know 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, is the capacity reduction doesn't prevent you from handling that or from handling that efficiently is that a fair way to go about it?

Judy R. McReynolds

No, I mean, I think that's right, I mean, what you stated is right, we shouldn't have any trouble with that. In areas where we would anticipate that we will have a plan for if it is necessary to add doors to that facility and really some extent, what our capacity about is about in our business, is our equipment and our people, and those are very flexible and can, and very variable, and can be adjusted very quickly to deal with increased business.

Operator

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

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

My question is on, the potential for a reversal of some of the nonunion wage and benefit concessions that were made. I'm 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. So how should we think about that? You've got some good things going on the probability side, you have an eventuality with the ways and benefit on the union side. So how do we think about maybe, the potential reversal in the nonunion concessions?

Judy R. McReynolds

Well, I think, when we think going forward, we're not thinking of a reversal of that at all. It's really just about normal increased levels in nonunion compensation and benefit. We've really -- one of the bigger items there that in 2013, was the freeze of the nonunion pension plan, and that's not going to be reversed. I mean that is finished. We do have the defined contribution plan to contribute to. We began doing that for the pension participants and the second half of last year and we already doing that for the others that were never a part of the pension benefit to begin with. And so, we expect that, that will continue, but that's not an abnormal increase level. And it's 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. So I would say, just more kind of business as usual normal levels of increase in that category.

Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division

And what does the change start for the union wage and benefit inflation? Is that in July?

Judy R. McReynolds

In July, July.

Michael E. Newcity

We'll take one more question.

Operator

And our next question comes from the line of Jeff Kauffman.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Most of my questions were asked by Hoexter and Tom Albrecht, so let me come at you in a different way. I mean, there's a tremendous opportunity for you right here, Judy. And I know, you said, the additional changes, you're going to make, you're going to play out over the next 2 to 3 years, but could you kind of give me an idea if I go out 2, 3 years and I look at Arkansas Best, what's going to be different versus what I'm seeing today?

Judy R. McReynolds

Well, as I mentioned earlier, we expect to see a more balanced revenue of I guess, source of -- you're going to have the ABF Freight revenue source than we expect that to grow, but we don't expect it to grow at the rapid rate of the emerging businesses will grow. And so we expect to see more balanced 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's 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 that 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've been able to even further that service offering to our customers. And so, we feel good about the opportunity that we have to -- for our company in say 2 or 3 years to be a company that customers look at and say that we have the services they need and that we're able to deliver those in a single sourced or single point of entry way for them, and that's our goal. Is there good conversations, this is not about inventing something that we're not doing already. Is just about better execution from the sales standpoint and operational excellence, when we deliver the 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.

R. David Humphrey

I think this concludes our call, and we appreciate your interest in Arkansas Best Corporation. And our call is over now. Thank you very much.

Operator

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

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