Arkansas Best Beats Despite Weakened Cash Flow

| About: ArcBest Corporation (ARCB)

In our weekly earnings preview, we said:

We’re staying away from truckers who own trucks.

Let’s see how that strategy is working out now that Arkansas Best Corporation (ABFS) announced its 1st quarter 2007 results:

Arkansas Best Corporation today announced first quarter 2007 revenue of $422.6 million compared to $425.0 million in the first quarter of 2006. Arkansas Best’s first quarter 2007 income from continuing operations was $4.8 million, or $0.19 a share, compared to $5.8 million, or $0.23 a share, in the first quarter of 2006.

Consensus estimates called for the company to earn $0.15 per share on $415 million in sales. The results included $0.03 per share of “supplemental pension benefits” that it looks like the company wants investors to pull out of the earnings, though we can’t for the life of us imagine why investors would. Sure, the amount is volatile - but so are other Arkansas Best operating costs such as fuel.

“In October of 2006, ABF’s tonnage declined significantly compared to the previous year. In November, when it became apparent that fourth quarter tonnage would be below expectations, ABF began reducing costs to better match available business levels. Those tonnage declines have continued into 2007. However, the expense reduction steps first initiated last November helped better align ABF’s network with existing business. As a result, lower tonnage had less of an impact on ABF’s operating ratio than we’ve seen in previous downturns or in the fourth quarter of 2006,” said Robert A. Davidson, Arkansas Best President and Chief Executive Officer.

Analysts are expecting the company to earn $0.70 on $470 million in sales during the June quarter.

Turning to the financial statements, we are somewhat concerned by reductions in the amounts reserved for bad debt, as a percentage of the amount owed. If the reserves had been kept at the same percentage of receivables as last year earnings would have been $0.17. The fact that they beat estimates regardless of the discretionary accrual rate helps mitigate the concern a bit. However, cash flow from operations declined more than net income for the quarter compared to last year and the operating cash flows for the quarter were below the amount spent buying new equipment. Given quarterly fluctuations in cash flow, it is too soon to make much of this concern other than to mention and monitor it.