Earnings season continued November 1 with Arkansas Best (Nasdaq:ABFS) announcing its third quarter results before the market opened Thursday, and Starbucks (Nasdaq:SBUX) delivered its fourth quarter and year-end numbers after the market closed. Analyzing the reports of two completely different businesses, and then comparing them to decide which stock is the better investment, isn't an easy task. Nonetheless, here is a rundown of the pros and cons of each company's results.

Forex Broker Guide: Using the right broker is essential when competing in today's forex marketplace.

Arkansas Best - Pros
Operating revenues grew 13% to $577.5 million, beating the consensus estimate by $12.24 million. Its non-asset-based segments include: truck brokerage, roadside assistance for commercial vehicles, logistics and expedited freight services, and household moving services. Thanks to the June purchase of Panther Expedited Services from private equity firm Fenway Partners for $180 million, the four segments were able to generate $130.3 million in revenue in Q for a 119% increase year-over-year.

More importantly, the asset-light part of its business accounted for 23% of its overall revenue and 31% of operating income. In terms of operating income growth, its non-asset-based businesses saw a 15.3% increase from the same quarter last year. While there wasn't a whole lot of good news to report in its freight transportation division (79% of revenue), it did manage to increase the billed revenue per shipment by 3.7% to $393.47.

Arkansas Best - Cons
It's important to keep in mind that while the third quarter wasn't pretty, it still managed to deliver a profit, which is all that really matters. They can't all be home runs. ABF Freight Systems saw its business levels decline by 1.4% in the third quarter to 12,463 tons per day. However, due to price increases throughout most of 2011 and into the first quarter of 2012, which resulted in higher billed revenue per shipment, Arkansas Best's biggest segment saw revenues decline by just $3.3 million. Unfortunately, due to its ongoing high cost operating structure, ABF Freight Systems' operating expenses increased over 200 basis points (bps) to 97.9% of revenue. Negotiations on a new labor contract with the Teamsters begin December 18.

Management is hopeful it can negotiate a contract that allows it to move forward, profitably creating new jobs along the way. How likely is the union to budge? If recent deals in Canada with Ford (NYSE:F) and General Motors (NYSE:GM) are any indication, I believe Arkansas Best should be able to hammer out an equitable compromise with its employees. Until then, investors can expect its reduced profitability to continue. In the third quarter, its overall operating profits declined 42% to $12.2 million and ABF Freight Systems by 52% to $8.4 million. Therefore, it's no wonder that its stock is trading at its lowest level since 2000.

SEE: How To Decode A Company's Earnings Report

Starbucks - Pros
There's a lot that's good about its fourth quarter and year-end results. Starting with the first quarter, I really liked the 60 bps improvement in its non-GAAP operating margin to 15.4%. Its margins have never been higher. Because of its margin expansion, its non-GAAP earnings per share increased 24% to 46 cents. Not wanting to forget same-store sales, globally they increased 6% in the fourth quarter, including a 15% jump in the China Asia Pacific (CAP) segment.

Speaking of margins, the CAP region, despite a 340-basis point reduction in its operating margin, managed to generate an operating margin of 32.9% in the quarter. If it can hold the line on those margins, continue to open new stores and grow same store sales on a quarterly basis, there's no telling how profitable the overall company can be.

Its year-end results were slightly higher in terms of revenue growth - up 13.7% to a record $13.3 billion. Global same-store sales were also higher for the entire fiscal year, increasing by 7%, with a 15% boost from the CAP region, and earnings per share on a non-GAAP basis increased 180% to $1.79. What this tells me is that while revenues increased at a faster rate in the first three quarters of the year compared to the fourth, its bottom line fattened in the fourth quarter, making 2013 something to look forward to.

Starbucks - Cons
About the only negative I can see with Starbucks is its Europe, Middle East and Africa (EMEA) segment, which had an operating loss of $6.5 million in the fourth quarter, on $283.7 million in revenue. However, as EMEA President Michelle Gass pointed out in her presentation for yesterday's conference call, that were it not for $11.5 million in charges to optimize its store portfolio for greater profitability and $9.2 million for asset impairments in U.K., Germany and France, its operating margin in Q4 2012 actually improved to 1.8% from 0.9% in Q4 2011.

Gass was brought in a year ago to turn around the profitability in the region. As a 16-year veteran of the company, I'm sure she'll do what needs getting done in order to reach its operating margin goal in the mid-teens. The European economy will have to improve quite a bit, but that's not something she can control. All Gass and her team can do is work on improving the customer experience and controlling its costs. The rest is out of its hands.

The Bottom Line
As long as its management continues to stay solid, and its employers remember to treat its employees right and deliver a positive customer experience, I don't see Starbucks losing its mojo anytime soon. Arkansas Best, on the other hand, is a beaten-down stock in a very competitive industry. It hasn't traded this low since 1999 and its profitability hasn't looked good for some time now. As a value play, I'd probably give it serious consideration. That said, Starbucks is a better investment over Arkansas Best right now, and probably many years into the future as well.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily Healthcare Bull 3X

    Learn about the Direxion Daily Healthcare Bull. This is a leveraged ETF that tracks the health care sector, which is a leader in this bull market.
  2. Mutual Funds & ETFs

    Top 5 Bear Market Mutual Funds

    Discover five bear market mutual funds that investors can turn to for generating maximum capital appreciation during a bear market.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Markets

    The Origins of the Chinese Stock Market Collapse

    Learn about some of the reasons for the volatility in the Chinese stock market, including expansion of margin lending and governmental support.
  5. Investing

    Factors Driving Kroger's Success

    Kroger’s focus on optimizing customer experience and cultivating its own product lines has proven to be successful strategy.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
RELATED TERMS
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Equity

    The value of an asset less the value of all liabilities on that ...
  3. Bear Closing

    Purchasing a security, currency, or commodity in order to close ...
  4. Maximum Drawdown (MDD)

    The maximum loss from a peak to a trough of a portfolio, before ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!