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Arkansas Best Corp. (ABFS) facilitates what are called less-than-truckload (LTL) shipments, those weighting 151 and 20,000 lb, across North America and American territories. These differ from full-truckload in that they may offer addition services such as inside delivery, freeze protection, and residential delivery. Most pick-ups are followed by delivery to a hub which sorts the parcels so that deliveries can be efficiently spread within a regional service center. Pallets and crates reinforced with corrugated fiberboard or cardboard represent how items are typically secured.

With 275 service centers, ABC uses this network of hubs to deliver shipments to smaller service centers for local delivery. With ABC, officers average 26-years of experience and with driver turnover routinely half of the industry average, a demonstrably satisfactory work environment appears to keep operations humming. Content drivers could attribute to why accidents by drivers are at a 25-year low.

As gas continues to rise while the economy struggles to regain its footing, freight may be one of the first business sectors most directly affected. Certainly it represents why rising revenues have not necessarily translated into rising profits. Management has taken proactive steps to cutting costs. In the last five years, a 23% reduction in employee jobs and $15 million in benefits from the 25% of the workforce that are nonunion workers has done much to keep the operation nimble. Routinely profitable over the past few years, the economy hit ABC hard in the latter part of 2008 and 2009 as companies were at the height of capital conservation mode. In all of the 2010 quarters, the losses have been progressively less. In Q3, ABC was just around a million short of getting back into the black. In another effort to conserve capital, the dividend was reigned in from $0.15 to $0.03 in Q4 2009.

While well-equipped with as many service centers as they have, ABC handles only 2% of the shipment of regional freight tonnage, representing the opportunity for multiples of growth. For the long-haul freight, ABC carries 8% of the tonnage. Between 2008 and 2009, ABC saw an 11% drop in shipment tonnage, but rebounded 14% between 2009 and 2010.

A committed management typically has a good portion of the equity in the stock. At ABC, this is very much the case, with the management team owning nearly 6% and taking salaries at pittance of those at comparable companies. Employee salary costs command 70% of ABC’s revenue with gas and repair costs constituting much of the rest. When the economy comes back, with their ownership of millions of square feet of storage space and numerous trucks, higher profit margins can be eked out of a highly competitive business, yielding a level of profitability which ABC has routinely seen in better years gone by.

Source: Arkansas Best on Its Way to Profitability