This trucker’s turnaround is right on schedule, but the shares have not yet caught up with the company’s potential.
ArcBest Corp (ARCB)
from Capitalist Times
At the end of April, Wealth Builders Portfolio holding Arkansas Best Corp changed its name to ArcBest Corp and adopted the trading symbol ARCB. However, this rebranding hasn’t changed the company’s underlying business or our investment thesis.
ArcBest still generates about 75% of its revenue from its less-than-truckload (LTL) freight business, which involve collecting smaller shipments from multiple customers and consolidating these items at local service centers for transportation to their final destination.
The company’s newer asset-light operations, which include a promising premium logistics business that specializes in delivering temperature-controlled and time-sensitive packages, account for the remainder of ArcBest’s sales.
But the company aims to double revenue in its so-called emerging business lines by the end of 2015 and indicated that additional mergers and acquisitions could be an option.
In several updates last winter, management had warned investors that severe weather-related disruptions in many of its service areas would weigh heavily on first-quarter results. Although the company posted a net loss of $2.9 million (excluding one-time pension settlement charges), underlying business trends suggest that the firm’s freight business would have turned a profit if the weather had cooperated.
We expect ArcBest’s turnaround story to gain traction in coming quarters, as operating conditions normalize and the following upside drivers flow through to the bottom line:
• An annualized $55 million to $65 million in cost savings after renegotiating a labor contract with the International Brotherhood of Teamsters;
• Another $10 to $12 million in cost savings from the closure of about 30 service centers;
• A 5.4% general rate increase implemented by its LTL freight business that will affect about 35% of its basis; and New contracts renegotiated in the first quarter that brought an average price increase of 4.3%.
Management also indicated that the company’s newfound flexibility from its renegotiated contract with the labor union could open the door for additional cost-reduction efforts.
With the US economy gathering strength and demand for freight services picking up, ArcBest Corp rates a buy up to $43.00.
Elliott Gue & Roger Conrad, Capitalist Times, www.capitalisttimes.com, 888-960-2759, May 17, 2014