The International Brotherhood of Teamsters is reporting that it and Fort Smith-based Arkansas Best Corp. have reached a tentative agreement on 15% pay cuts through 2013 for the roughly 6,000 drivers who work for the less-than-truckload carrier.
According to published reports by the Associated Press and Reuters, an analyst with FBR Capital upgraded the shares of Arkansas Best (NASDAQ: ABFS), saying the new wage deal with the union will help the company survive a national freight recession that began in October 2006. ABF Freight System, the largest subsidiary of Arkansas Best Corp., is one of the nation’s largest LTL operators.
The tentative deal between the union and ABF also requires company management and nonunion employees to take an equal amount of pay cuts. However, nine separate nonunion wage and benefit cuts, already implemented since Jan. 1, 2008, will be considered in determining if any further management and nonunion employee cuts are required.
Teamsters officials reported that Arkansas Best is losing about $10 million a month in 2010 and needed the pay cuts to keep from burning through its cash reserves.
“ABF has been exhausting its cash reserves at an unsustainable rate and cannot face losses of this magnitude for much longer, especially in a tight credit market where alternative financing has largely dried up,” according to a Teamsters statement.
Updated info: David Humphrey, vice president-investor relations and corporate communications for Arkansas Best, provided the following “plan highlights” of the amended contract.
• The plan calls for a 15% wage and mileage rate reduction through the term of the current National Master Freight Agreement — March 31, 2013.
• "Equal Sacrifice" provisions call for ABF's management and non-union employees to participate in an equal manner of financial sacrifice as ABF Teamsters.
• There are no changes to the Health, Welfare, and Pension contributions for ABF's Teamster employees.
• Multiple 'snapback' provisions that automatically reduce the wage reduction if ABF's operating metrics improve sufficiently.
• "Earnings Plus", a performance-based incentive plan, was included where employees will receive cash payments every calendar quarter for which the company's public operating ratio is better than 99. The better the company operates, the more each employees receives.
The operating ratio, a key metric in the trucking industry, measures how much money a company spent to earn a dollar. A 99 ratio means the company spent 99 cents to earn $1.
“The tentative agreement must be ratified by ABF's Teamster employees. We are cautiously optimistic about the potential for ratification,” Humphrey said in his note to The City Wire. “We believe that the facts supporting ABF's need for ratification of this
agreement are compelling and that our employees will understand the need for ratification.”
Arkansas Best is scheduled to report earnings Friday (April 23), with the average of analyst estimates predicting the company will report a quarterly loss of $1 per share on an estimated $353.54 million in revenue.
The company, which employs about 9,500 nationwide, posted a 2009 net income loss of $127.52 million, compared to a $29.168 million gain in 2008. However, the 2009 income loss includes a non-cash accounting charge of $64 million for the impairment of goodwill. Total revenue in 2009 was $1.472 billion, a 19.6% dip from 2008 revenue of $1.833 billion.
ABF shares closed Tuesday at $30.56, down 79 cents. During the past 52 weeks the share price has ranged from a $34.56 high to a $20.08 low.
According to the Reuters report, Arkansas Best is the second national trucking company to seek pay cuts to preserve cash. YRC Worldwide asked its workers for a total 15% wage cut in 2009.