Incorporated: 1923
NAIC: 551112 Offices of Holding Companies; 484121 General Freight Trucking, Long-Distance, Truckload; 488510 Freight Transport Arrangement
SIC: 6719 Holding Companies Nec; 4213 Trucking Except Local; 4731 Freight Transportation Arrangement
Arkansas Best Corporation (ABC) is a holding company with diverse interests in all aspects of the national and international freight industry. The company's primary subsidiary, ABF Freight Systems, accounts for more than 80 percent of the company's annual revenues and provides shipping services with a fleet of more than 4,000 tractors and 20,000 trailers, with 250 shipping ports in over 150 countries. Through its other principal subsidiaries, FleetNet America and Data-Tronics Corporation, ABC also provides trailer repair and services and data and logistics management for ABF and other national freight companies.
Foundation and Growth: 1923-70
Arkansas Best Corporation has its roots in the ABF Freight Systems company, its largest subsidiary, which was founded in 1923 under the name OK Transfer. From the company's beginnings, hauling freight within the Arkansas borders, the company grew through several strategic mergers to expand gradually into the surrounding states. In 1935, the company completed its first major merger, combining with Arkansas Motor Freight to expand operations into Texas and the Midwest. The combined company, taking the name Arkansas Motor Freight, continued to grow rapidly, completing nine further acquisitions by 1950 and becoming one of the most profitable shipping companies in Arkansas.
In 1951, Fort Smith attorney Robert A. Young, Jr., purchased Arkansas Motor Freight and developed an aggressive business strategy that would bolster profits and help to make the company the dominant shipping concern in the region within a decade. In 1957, the company acquired Best Motor Freight and Young changed the company's name to Arkansas-Best Freight Systems. Young continued to grow his company through strategic acquisitions and eventually the senior management team decided to expand the business by forming a holding company to manage their various acquired subsidiaries.
Arkansas Best Corporation (ABC) was formally established in 1966, marking a new era for the 43-year-old trucking business. One of Young's oldest and closest business associates, H. L. Hembree, was selected to lead ABC as president, having previously worked his way through the company to the position of finance manager. Along with Young, who remained chairman of the board, Hembree helped to organize more than a dozen mergers and acquisitions over the following decade, significantly expanding the reach and influence of ABC's business.
In the months leading up to the formation of ABC, Young and the rest of ABF Freight's management had decided to diversify into business areas other than trucking, resolving to acquire interests that would move the company into business areas not regulated by the Interstate Commerce Commission, the federal regulatory organization responsible for supervising the railroad and carrier industries.
The company completed its first major acquisition seven months after ABC was incorporated. In December 1966, the company purchased Riverside Furniture Corporation and Twin Rivers Furniture Corporation, both of which had been established in 1946. The next acquisition moved ABC farther afield, both geographically and in business scope. In June 1968, ABC purchased a 64 percent stake in a Dallas, Texas-based financial institution, National Bank of Commerce, adding financial services to the company's widening roster of business interests. With these new additions rounding out ABC's major business interests, the company's management embarked on their new course, intent on applying their business skills to engender optimum profitability in the disparate business interests they maintained.
Within a few short years, ABC's management team had earned a solid reputation in the minds of analysts, drawing praise from nationally distributed publications that characterized the young cadre of managers as "ambitious, goal-oriented, and alert to opportunities for corporate growth." Heading this group and in charge of the day-to-day operations of the company was Hembree, who governed the company much like a former finance director would, with an emphasis on profitability and sound fiscal performance. "If you don't watch your costs," Hembree would explain later to a Forbes reporter about managing a trucking concern, "you can run up and down the highway with full loads and still go broke." Hembree, in the years ahead, would keep his eyes on costs, as they applied not only to ABF Freight, but to the three new additions as well. His was a perspective that placed a premium on profitability and gave ABC, which was described simply and accurately by industry pundits as a "management company," the task of stewarding each of its business segments in the right direction.
By the time the dust had settled from the acquisition of the National Bank of Commerce in June 1968, ABC was recording success in managing its new furniture business, having organized the Twin Rivers Furniture Corporation as a subsidiary of its Riverside Furniture subsidiary. By far the parent company's most important business, however, was its trucking concern, ABF Freight. By the late 1960s, ABF Freight was covering 12,500 route miles, transporting food, textiles, apparel, furniture, appliances, chemicals, and machinery, along with a host of other goods, with no single type of commodity accounting for more than 3 percent of the company's total traffic. The nearly 40-year-old trucking line hauled its freight through a 14-state area, servicing major commercial hubs throughout the Midwest and the southern United States, stopping throughout much of its service territory at company-owned terminals that were operated by another ABC subsidiary, Arkansas Bandag Corp., which also retreaded tires under a patented German process.
ABF Freight's service territory expanded before the end of the decade, moving into Pennsylvania and New York after ABC acquired Fast Freight, Inc., in November 1969. Although ABC collected roughly 80 percent of its annual revenues from its trucking business, the most promising segment of its business, at least in terms of financial growth, was its newly acquired furniture company. Riverside Furniture, which generated approximately 18 percent of its parent company's annual revenues during the late 1960s, manufactured popularly priced wood occasional tables, exposed wood living room furniture, and rocking chairs, marketing its products through the efforts of more than 50 salespeople. With roughly 5,000 wholesale and retail accounts and permanent showrooms in North Carolina, Los Angeles, San Francisco, and Seattle, Riverside Furniture ranked as one of the five largest table manufacturers in the United States, an enviable market position that was expected to grow stronger as the company benefited from the "ambitious and goal-oriented" management of ABC.
Early on, ABC's management was credited with staging two dramatic turnarounds, the reports of which induced financial analysts to recommend the company to prospective investors. Riverside Furniture recorded $9 million in annual sales in 1968, 26 percent more than the previous year's total. More impressive, however, was the growth achieved by National Bank of Commerce. Ranking as the fifth largest bank in Dallas County, Texas, National Bank of Commerce posted net operating earnings of nearly $850,000 in 1968, which represented an increase of 104 percent from the total recorded in 1967, giving senior management in Fort Smith every expectation that all three of their primary businesses would flourish during the decade ahead. As Hembree and the rest of his team prepared for the 1970s, plans were being made to bolster ABC's interests in each of its three major businesses, as the company searched for acquisitions in the transportation, consumer products, and financial services industries.
Changing Business Strategies: 1970-80
During the first few years of the 1970s, ABC followed through on its plans to grow through acquisitions, purchasing Flanders Manufacturing Co. and Coffey Furniture Industries, Inc., both of which were merged into Riverside Furniture's operations. The company also added to its trucking service territory by acquiring Youngblood Truck Lines, which extended ABF Freight's presence in the southeastern United States from 16 to 19 states. After this initial spurt of acquisition activity to start the decade, the company was enjoying encouraging success, with nearly every facet of its business demonstrating vibrant growth. By the end of 1973, ABC's furniture segment was accounting for roughly 30 percent of the company's total yearly sales, up from the 18 percent it contributed five years earlier, and the profits derived from furniture manufacturing had registered a greater leap, jumping from 12 percent to 32 percent during the five-year span.
ABF Freight, meanwhile, had exhibited a vitality of its own, consistently ranking as one of the most profitable operations in the trucking industry. The 31st largest trucking concern in the country in terms of total revenues, ABF Freight operated in a 19-state territory, bounded by Wisconsin, Ohio, Indiana, and New York on the north; Kansas, Oklahoma, and Texas on the west; Louisiana, Mississippi, and Georgia on the south; and North and South Carolina on the east.
Conspicuously absent from the series of acquisitions during the early 1970s were any additions to ABC's financial services segment. Despite increasing its net income two and a half times in its first five years as a partly owned ABC subsidiary, National Bank of Commerce had proved to be an ill-advised acquisition. The bank, as one company observer noted, had "serious collateral problems in its loan portfolio," but Hembree did not become aware of such problems until 1972, four years after he had invested in the bank. Once alerted to the problem, Hembree disposed of ABC's interest, explaining, "Autonomy was the problem with [National Bank of Commerce]. It was also the only subsidiary in which we had less than 100 percent interest." After writing off $22 million over a three-year period, Hembree had learned a valuable lesson, vowing, "We will never make that mistake again."
While the National Bank of Commerce was being divested, ABC continued to strengthen its trucking concern's business, completing a string of acquisitions during the mid-1970s that gave ABF Freight the operating authority to service a larger territory. By 1977, however, the value of operating authority for additional territories was becoming questionable as the U.S. Congress was debating deregulating interstate trucking, which would open routes to any interested trucking company. Mindful that federal intervention would dramatically alter the dynamics of his company's mainstay business, Hembree knew a decision had to be made about the future course of ABF Freight and ABC if the government did indeed deregulate the trucking industry. For help, Hembree turned to his four full-time economic forecasters for advice on what the company should do in the event of deregulation.
Hembree's economic forecasters and their computers came up with three possible options: scale back expansion and become a regional trucker in the Midwest, sell the company to a larger competitor, or buy another trucking company and make a bid to become a major national carrier. In Hembree's mind, the first two options assured survival, but as he later explained to a Forbes reporter, "I didn't want to be just a survivor--makes it sound like you're going to a funeral. I wanted to achieve." Accordingly, he adopted the third option as the company's strategy, deciding that before deregulation opened the floodgates to the trucking industry ABF Freight would become a major national competitor. The first step toward national prominence was taken in 1978, when Hembree authorized the acquisition of Denver-based Navajo Freight Line for roughly $15 million. The move immediately transformed ABF Freight from the country's 22nd largest trucking company into the eighth largest concern.
Deregulation and Adjustment: 1980-2000
In the early 1980s, ABC continued its growth strategy with the acquisition, in 1982, of East Texas Motor Freight, Inc. With the addition of East Texas and Navajo Freight, the company had access to 90 percent of the nation's major metropolitan markets. Still the major engine driving ABC's growth, ABF Freight contributed the bulk of what its parent company declared in annual sales, a figure that had grown exponentially between the mid-1970s and mid-1980s, soaring from roughly $150 million to more than $500 million.
The U.S. trucking industry, as expected, was deregulated early in the decade, making the operating rights ABC had obtained through more than 30 acquisitions essentially worthless. The passage of the 1980 Motor Carrier Act also precipitated another change in ABF Freight's business, one that would change the way in which the company operated and opened the doors to a flourishing segment of the carrier market. The number of licensed trucking companies doubled in the first few years after deregulation; then, just as quickly, a majority of the new entrants fell into financial ruin. The rising number of bankruptcies created more than $1 billion worth of extra business for those who survived, with the biggest profits going to those companies that operated as less-than-truckload (LTL) carriers. Aware of the shifting dynamics in its industry, ABC changed from being a truckload operator to an LTL carrier, ranking by the mid-1980s as one of the five leading competitors in the lucrative industry niche market.
In 1988, Emanuel Pearlman's Razorback Acquisition Corporation attempted a hostile takeover of Arkansas Best. The company avoided the takeover through a partnership with Kelso & Co., a New York-based private equity company that conducted a leveraged buyout, thereby making ABC a private company. ABC repaid its debt, under the leadership of Robert A. Young III, and engaged in a number of fund raising measures, which included selling its subsidiary, USA Truck, and its furniture business in 1989. In 1992, the company returned to public status, trading its shares on the NASDAQ.
By the end of 1993, ABC could rightly call itself a $1 billion company, generating $1.009 billion in sales and posting more than $50 million in operating income. Growth continued over the next several years and, in 1995, ABC was posting annual sales in excess of $1.4 billion. As the company prepared for the beginning of the 21st century, Robert A. Young III, the son of ABC's founding chairman, was leading the way as chief executive officer, hoping to continue the robust growth that had transformed the company's mainstay business from the 48th largest trucking company into the country's fourth largest.
The 1995 acquisition of WorldWay Corporation, a holding company similar to ABC, gave the company control of two of their major competitors, Carolina Freight Carriers Corporation and Red Arrow Freight Lines, Inc. Carolina Freight Carriers Corporation also had a subsidiary company, known as Carolina Breakdown Service, that provided breakdown assistance and repair for the company's vehicles. After the integration of Carolina's companies into ABC, the company bolstered their investment in the breakdown service, transforming it into one of the company's major operating divisions. The company was renamed FleetNet America in 1997 and began offering its services to truckers working with other shipping companies and for privately owned trucks.
While the company diversified its vehicle repair operations, significant resources were also invested in Data-Tronics Corp. (DTC), the company's logistics and computer services division, which was established in 1962 and had grown along with ABC to handle the needs of the company's rapidly expanding shipping divisions. By the end of the 1990s, DTC was one of the company's three largest divisions and had successfully shifted toward an Internet system for managing shipping and logistics. DTC's programming and development teams were recognized within the industry for their innovative design solutions, which played a major role in helping ABC's shipping companies to become leaders in the national market.
ABC Enters the 21st Century
Arkansas Best achieved its third year of record income in 2000, recording over $1.8 billion in revenues for the year, and was recognized by Forbes magazine as one of the nation's 400 leading companies. ABF Freight Systems continued to be the company's largest and most profitable subsidiary, accounting for more than 75 percent of revenues. Among the notable accomplishments of the year, ABC's subsidiary Treadco, which the company purchased in 1999, entered into a joint venture with Goodyear, Inc., to create Wingfoot Commercial Tire Systems, LLC, which was the largest network of tire sales and service in the nation.
The following year, ABC's business suffered during a recession that extended into nearly every national industry. Revenues fell from $1.8 billion to $1.5 billion in 2001 and $1.4 billion in 2002. The company responded by selling some of its less-profitable divisions and paying down company debt. In 2003, revenues returned to the $1.5 billion mark and the company had successfully eliminated its long-term debt (estimated in 1995 at over $400 million). Despite two years of financial difficulties, ABC was still recognized by analyst organizations, such as Forbes magazine, as one of the leading companies in the nation. Revenues increased again in 2004, reaching $1.7 billion by the end of the year.
As Robert Young III planned for his eventual retirement, the company made changes to its management and executive staff. Robert A. Davidson, who joined the company in 1972 in the company's economic analysis department and later served as president of ABF Freight System, Inc., was named to the ABC Board of Directors in December 2003. In January 2004, Davidson was promoted to president and chief operating officer. With a history of prudent economic analysis and management, Davidson helped to develop strategies that continued the two-year pattern of growth for ABC and its largest affiliates. After Davidson's first full year at the company's helm, ABC reported revenues exceeding $1.8 billion. It was reported in October 2005 that Robert A. Young III would retire, effective in 2006, and that Davidson had been named as his replacement to serve as ABC's CEO.
In 2006, the board completed the sale of Clipper Exxpress, the company's intermodal transportation subsidiary, for a reported price of $19 million. Although Clipper had been a strong contributor to the company's past successes, the company had come to represent less than 10 percent of incoming revenues and had declined in profitability over the course of ABC's ownership. In addition, Davidson cited a "lack of synergy" between Clipper and the rest of ABC's subsidiary businesses as a key reason for the sale. In 2006, ABC recorded approximately $1.9 billion in revenues and had achieved a steady pattern of growth. As in previous years, ABF was consistently the most profitable subsidiary, representing over 90 percent of the company's revenues.
In the company's transition from local shipping management to nationwide shipping and logistics leader, ABC's success relied on shrewd industry analysis and confident management. By the third quarter of 2007, ABC had experienced a net reduction in profits, largely related to fluctuations within the industry and changes to tonnage levels and costs. Third-quarter revenues were estimated at $479.8 million compared to third-quarter 2006 revenues of $507.3 million. Although industry changes again posed a challenge, Davidson and his fellow managers remained confident that the company's financial outlook was positive.
Principal Subsidiaries
ABF Freight System, Inc.; Data-Tronics Corp.; FleetNet America, Inc.
Principal Competitors
Con-way Freight; FedEx Freight; YRC Worldwide, Inc.
Further Reading
"Arkansas Best Unit Acquisition," Wall Street Journal, December 29, 1978, p. 24.
Bagamery, Anne, "We Want to Achieve," Forbes, August 17, 1981, p. 58.
"Bid Made for Arkansas Best," New York Times, May 3, 1988.
"Concern Concedes to Kelso, Drops Bid for Arkansas Best," Wall Street Journal, June 27, 1988, p. 17.
"Kelso Adding Arkansas Best," New York Times, June 18, 1988.
Mitchell, Ruth, "Truckin' On," Arkansas Business, July 15, 1991, p. 25.
Myers, Randy, "Growth Trucker," Barron's, November 11, 1985, p. 85.
Power, Christopher, "What Can You Buy with $116,325 and a Good Idea," Business Week, June 13, 1988, p. 38.
Smith, David, "Treadco Investors Know What's Best," Arkansas Business, April 1999.
Turner, Lance, "Arkansas Best to Sell Clipper Unit for $20 Million," Arkansas Business, May 2006.
— Jeffrey L. Covell; Updated by Micah L. Issitt
