Arkansas Best CorporationABFS

Morningstar Rating

Stock Research and Analysis

by Anthony Dayrit

As one of the steadiest performers in the highly cyclical trucking industry, Arkansas Best has maintained positive, albeit low, operating margins even during periods of soft freight shipping demand. However, returns on invested capital have fluctuated Read more

Bulls Say

Arkansas Best has produced steady results despite operating in a highly cyclical environment, generating positive profit margins and positive cash flow during every year for the last decade.

Arkansas Best's policy of running a modern fleet by replacing its road (long-haul) tractors every three to four years helps to not only improve service efficiency and control maintenance costs, but also boost driver morale.

The company possesses low employee turnover in an industry with historically high turnover rates--the firm's rate is around 6%-7%, with about half attributed to retirement. Low turnover gives Arkansas Best a team of well-trained and experienced drivers, which improves service and reliability. Read more

Bears Say

Arkansas Best's operating ratio ranks in the middle of those generated by its less-than-truckload peers, such as FedEx, Con-Way CNW, Old Dominion ODFL, and YRC Worldwide YRCW. Although the firm previously generated positive margins during periods of weak demand, it posted an operating loss in 2009.

About three fourths of the firm's employees are members of labor unions. A unionized workforce is less flexible than nonunionized operations if individuals are not allowed to perform multiple tasks, which may lead to higher compensation expenses because the company will need to hire additional employees.

Like other trucking firms, Arkansas Best is vulnerable to diesel price increases. Higher prices are often a double-edged sword--though they result in increased fuel surcharge revenue, they increase fuel expenses and limit the company's ability to raise its base freight rates, pressuring margins. Read more

Strategy

In 2006, the company sold Clipper, its intermodal logistics business, in order to concentrate on its core trucking competency. Arkansas Best's main initiatives involve maintaining high-quality and reliable Read more

Management

Arkansas Best's solid management team has demonstrated its ability to weather the cyclical nature of the trucking business. Robert Davidson took over the CEO role in 2006 after serving as COO; in total, Davidson has more than 35 years of experience Read more

Profile

Arkansas Best is one of the largest national and regional less-than-truckload carriers in North America, generating revenue of around $1.5 billion in 2008. Around three Read more

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