After surging 15% yesterday in the immediate wake of third-quarter earnings, shares of Arkansas Best Corporation (NASDAQ:ARCB) are on the march again in early Tuesday trading, tacking on an additional 3%, and pushing the trucker back toward its 52-week high of $31.90. But was the news good enough to justify what's now coming close to a two-day 20% gain?
Let's find out.
Arkansas Best's good news...
In the third fiscal quarter of 2013, Arkansas Best reported:
- 8% revenue growth to $623.4 million
- Increased average revenue per hundredweight (pounds of cargo transported) by about 0.7%, to $28.67
- Brought itself to "break-even" revenues for the year to date
- 117% growth in profits per diluted share, to $0.52 -- despite the fact that a combination of one-time charges and benefits shaved $0.02 per share off of Arkansas Best's take for the quarter
As CEO Judy R. McReynolds pointed out, this wasn't just a good quarter, but actually the "strongest quarter of the year" for Arkansas Best. That shouldn't necessarily come as a surprise, as the company says that its third quarters are "traditionally strong". But management noted that this quarter in particular, it received especial benefits from its higher-margin, non-asset-based businesses such as Panther Expedited Services, which it acquired last year. Such subsidiaries, says the company, showed 45% growth in earnings before interest, taxes, depreciation, and amortization in comparison to year-ago levels.
...and its best news
Probably the best news of all for Arkansas Best, though, is that while rival YRC Worldwide (NASDAQ:YRCW) continues to struggle to extract a new contract from its Teamsters Union, Arkansas Best has already wrapped up negotiations with its union employees. Running from Nov. 3, 2013, through March 31, 2018, the new contract "represents a major milestone for ABF," by winning the company a "level of cost savings" sufficient to cut costs by $55 million-$65 million per year -- even after recent union health, welfare, and pension increases.
What does this mean for the company Well, look at it this way: Arkansas Best has reported GAAP losses in three of the past five years. Savings even at the low end of management's estimate ($55 million) would have sufficed to turn two of those "loser" years into winners, with Arkansas Best booking GAAP profits in each. And in the third of those years, 2009, an extra $55 million in the bank would have at least generated a cash profit -- giving the company an unbroken string five straight free cash flow positive years.
Reason enough for a nearly 20% jump in stock price? I think so, yes.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.