Transportation and Automotive Sector Ideas

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Arkansas Best -- >>> Should You Invest In Starbucks Or Arkansas Best?


November 02, 2012


http://www.investopedia.com/stock-analysis/2012/should-you-invest-in-starbucks-or-arkansas-best-sbux-abfs-f-gm1102.aspx?partner=YahooSA#axzz2EKWyY88t



Earnings season continued November 1 with Arkansas Best (Nasdaq:ABFS) announcing its third quarter results before the market opened Thursday, and Starbucks (Nasdaq:SBUX) delivered its fourth quarter and year-end numbers after the market closed. Analyzing the reports of two completely different businesses, and then comparing them to decide which stock is the better investment, isn't an easy task. Nonetheless, here is a rundown of the pros and cons of each company's results.


Arkansas Best - Pros

Operating revenues grew 13% to $577.5 million, beating the consensus estimate by $12.24 million. Its non-asset-based segments include: truck brokerage, roadside assistance for commercial vehicles, logistics and expedited freight services, and household moving services. Thanks to the June purchase of Panther Expedited Services from private equity firm Fenway Partners for $180 million, the four segments were able to generate $130.3 million in revenue in Q for a 119% increase year-over-year.

More importantly, the asset-light part of its business accounted for 23% of its overall revenue and 31% of operating income. In terms of operating income growth, its non-asset-based businesses saw a 15.3% increase from the same quarter last year. While there wasn't a whole lot of good news to report in its freight transportation division (79% of revenue), it did manage to increase the billed revenue per shipment by 3.7% to $393.47.

Arkansas Best - Cons

It's important to keep in mind that while the third quarter wasn't pretty, it still managed to deliver a profit, which is all that really matters. They can't all be home runs. ABF Freight Systems saw its business levels decline by 1.4% in the third quarter to 12,463 tons per day. However, due to price increases throughout most of 2011 and into the first quarter of 2012, which resulted in higher billed revenue per shipment, Arkansas Best's biggest segment saw revenues decline by just $3.3 million. Unfortunately, due to its ongoing high cost operating structure, ABF Freight Systems' operating expenses increased over 200 basis points (bps) to 97.9% of revenue. Negotiations on a new labor contract with the Teamsters begin December 18.

Management is hopeful it can negotiate a contract that allows it to move forward, profitably creating new jobs along the way. How likely is the union to budge? If recent deals in Canada with Ford (NYSE:F) and General Motors (NYSE:GM) are any indication, I believe Arkansas Best should be able to hammer out an equitable compromise with its employees. Until then, investors can expect its reduced profitability to continue. In the third quarter, its overall operating profits declined 42% to $12.2 million and ABF Freight Systems by 52% to $8.4 million. Therefore, it's no wonder that its stock is trading at its lowest level since 2000.

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