Deutsche Bank Gives Color On Arkansas Best Following Earnings Report

Yesterday morning, Arkanasas Best Corp ABFS reported a Q1 loss of $0.51/share, well below Deutsche Bank's estimate of a loss of $0.24/share and Consensus of a $0.21/share loss. Q1 results were impacted by weather, the lag effect of its fuel surcharge mechanism, as well as fuel surcharge caps and an uncompetitive cost structure. While ABFS benefited from improving tonnage trends, the company failed to generate operating leverage inline with Deutsche Bank's model as cost remains an issue. While the Street focused on ABFS' fuel surcharge caps and, the bigger issue remains ABFS' cost structure. The majority of ABFS' miss was due to its cost structure, and not the more one-time items. Deutsche Bank does not expect material cost savings near-term from either its lawsuit or multiemployer pension relief. Given an uncompetitive cost structure due in part to above-average wage and benefits, Deutsche Bank remains concerned about ABFS's cost structure. Valuation is not yet compelling enough for it to be a buyer at current levels even after yesterday's declines. Deutsche Bank has lowered its 2011-12 EPS estimates to $0.05 and $1.68, respectively, from $0.76 and $1.95. Deutsche Bank has a $24 PT and Hold rating on ABFS ABFS closed Monday at $23.34