Arkansas Best: The Upside of Union Negotiations
Arkansas Best is my second foray into the trucking world. Its discovery I owe to @Largcaptrader1 on twitter, who pointed out to me that the company may be a better way to play the industry than YRC Worldwide.
This is a much simpler investment idea than YRC Worldwide. While it took me weeks to wrap my head around all of the debt, liabilities and history of YRC Worldwide, it took me a couple days to get to the core of Arkansas Best.
But that isn’t to say that this is an easy win. The issue with Arkansas Best is singular, but it’s outcome is not easily determined. Just how well the investment plays out depends almost entirely on the outcome of negotiations with the Teamster union for the soon to be expired workers contract.
A bit of Background
Arkansas Best is a less-than-load trucker, very much a competitor of YRC Worldwide (which I wrote about the other day). Like YRC Worldwide, Arkansas Best is burdened by high costs relative to their competitors due to the high level of union employees. However unlike YRC Worldwide, Arkansas Best has been able to get by and be very marginally profitable without modifications to their employee contracts. They have an efficient operation that is mostly cash positive of an operating basis and that appears to be close to cash neutral after considering CAPEX requirements. They have far less debt than YRC Worldwide ($195 million versus 1.4 billion) and the company trades at a discount to book value ($11.55). Read more
Reminiscences of a Stockblogger 