A labor agreement between Arkansas Best Corp. and the International Brotherhood of Teamsters has been fully ratified, with savings from wage and benefit reductions possibly helping the company to avoid three consecutive years of losses.
Officials with Fort Smith-based Arkansas Best Corp. said late Wednesday (Oct. 30) that the ABF National Master Freight Agreement was ratified by the Teamsters’ ABF National Negotiating Committee. ABF Freight, one of the nation’s largest less-than-truckload (LTL) carriers, is the largest subsidiary of Arkansas Best.
The five-year contract – to expire on March 31, 2018 – between Arkansas Best and the Teamsters was approved June 27, but some supplemental provisions were rejected. Officials with both sides negotiated the rejected provisions, and the seven “local/area supplements” were again placed on the local ballots for approval. All but one of the supplements were approved, and on Tuesday the union members of the Central cartage voted to not strike. Following that vote, the Teamsters’ negotiating committee voted to ratify the agreement.
The contract covers about 7,500 employees of ABF Freight System who are members of the union. Most of those workers are drivers.
“On behalf of all of the people and customers who depend upon ABF Freight, we are pleased that this final step in our lengthy contract negotiation process is now complete,” Arkansas Best President and CEO Judy McReynolds said in a statement. “This new labor agreement follows several years of sacrifice from our non-union employees. As the transportation and logistics market continues to rapidly evolve, we are grateful that our union employees have also recognized the need for ABF Freight to operate much more efficiently so that we can better serve our customers every day.”
As of 5 p.m., the Teamsters did not have a statement on the contract ratification.
According to the statement from Arkansas Best, the agreement will result in savings of between $55 million and $65 million a year. The savings come from an immediate 7% wage reduction that is recovered by the fifth year of the contract. The wage and benefit reductions are set to begin Nov. 3. The company was also able to negotiate for flexibility in work schedules and work across job classifications. Most of those workers are drivers.
“The exact amount of savings will depend on the actual level of productivity gains that ABF is able to achieve through those work-rule changes and flexibility components,” the company noted in the statement.
Brad Delco, a transportation industry analyst with Little Rock-based Stephens Inc., said the company will see some savings in the fourth quarter of 2013, but it will take several quarters for the full effect of the wage and benefit reductions and efforts at efficiency to produce the best results.
Delco believes the company will report operating net income of $6.4 million for the third quarter. The company is scheduled to release third quarter results on Nov. 11. For the fourth quarter he estimates operating net income of $10.1 million, with full year operating income of around $8 million, or about 30 cents per share. The consensus estimate among analysts who watch the company is full year earnings of 21 cents per share.
For the first six months of 2013, the company posted a loss of $8.517 million. In 2012, the company posted a $7.7 million loss, a wide swing from the $6.159 million gain in 2011.
“In the near-term we believe the national agreement will put ABFS on a path to sustainable profitability as it more closely aligns the Company's cost structure with its LTL peers,” Delco wrote in an Oct. 30 investor note. “Longer term we believe the better cost structure and work rule flexibility will allow ABFS to become more competitive in new freight lanes and drive future tonnage growth and market share gains. Additionally, we believe improvements could be made to its network to improve efficiencies and drive out costs as ABFS's terminal infrastructure appears under utilized relative to its peers.”
COSTS OF CONTRACT DELAY
The earnings could have been higher if not for the more than four-month delay between the June 27 vote and the full ratification announced Wednesday.
In an early summer note to investors, Delco estimated the new contract would result in 2013 net earnings of 60 cents per share, or near $16.25 million. However, because the benefits of the new contract are not likely to begin until later in the third quarter, Delco August lowered the estimate to 30 cents per share.
For the same reason, Wells Fargo lowered its 2013 per share estimate for Arkansas Best to 43 cents from 67 cents.
It’s no small shift. For example, Delco’s lowered estimate shaves more than $8 million from the Arkansas Best bottom line. The lowered estimate by Wells Fargo reflects a reduction of almost $6.5 million from 2013 net income for Arkansas Best.
Delco also has said a complete “rationalizing” of the ABF terminal network could ultimately generate up to $32.5 million in annual savings, with each terminal closed saving the company just short of $1 million.
ABF President and CEO Roy Slagle said the new contract is just part of company’s effort to boost the bottomline.
“The implementation of our national five-year agreement is a significant step for our company and we are very pleased to move forward,” Slagle said in Wednesday’s statement. “However, this is just one of several initiatives that we are focused on as we continuously look for ways to improve the efficiency of national operations on behalf of our customers.”
Shares of Arkansas Best (NASDAQ: ABFS) closed Wednesday at $28.44, up 84 cents. During the past 52 weeks the share price has ranged from a $29.89 high to a $6.43 low.