Transportation and logistics provider ArcBest beat third-quarter expectations but forecast notable margin deterioration in both of its business segments during the fourth quarter.
ArcBest (NASDAQ: ARCB) reported adjusted earnings per share of $1.46 on Wednesday ahead of the market open. The result was 9 cents better than the consensus estimate but 18 cents lower year over year. Consolidated revenue of $1.05 billion was slightly ahead of expectations.
Click for full report – “ArcBest flags margin pressure in Q4”
The company’s asset-based unit, which includes less-than-truckload subsidiary ABF Freight, reported a 2% y/y increase in revenue per day as a 2% tonnage increase was partially offset by a 1% decline in yield (revenue per hundredweight). The yield metric was up against a plus-7.4% comp from last year.
The combination of a 4% increase in daily shipments and a 2% decline in weight per shipment drove the tonnage increase. It saw more freight from core LTL customers in the quarter, but overall weakness in the manufacturing complex was blamed for the lighter shipment weights.
Click for full report – “ArcBest flags margin pressure in Q4”
The unit was up against an easy tonnage comparison to the prior year (down 11.3% y/y in the 2024 third quarter). Tonnage increased y/y by 1.3% in July, 2.4% in August and 3.3% in September. Tonnage was down 1% y/y in October with yield coming in flat.
The October weakness is a little surprising given the easy comp to October 2024 (down 8.7%). However, other LTL carriers recently reported demand weakness during the first half of the month.
A 92.5% adjusted operating ratio (inverse of operating margin) was 150 basis point worse y/y but 30 bps better sequentially. That was better than management’s guidance (flat to 50 bps worse sequentially), which was lowered in an intraquarter update. The company originally guided to 70 bps of sequential improvement in the quarter (implying a 92.1% OR), which would have been in line with historical seasonal patterns.
Year-over-year cost increases like labor and benefits (50 bps higher as a percentage of revenue), purchased transportation (80 bps higher) and depreciation and amortization (up 100 bps) were the detractors.
The asset-based segment normally sees 100 to 200 bps of margin deterioration from the third quarter to the fourth quarter, but the company is forecasting 400 bps of degradation this year due to “ongoing softness in the broader freight market.” The guide implies a 96.5% adjusted OR, which would be 450 bps worse y/y.
The asset-light segment, which includes truck brokerage, reported adjusted operating income of $1.6 million. That was a second straight operating profit after seven consecutive losses. The company is calling for an adjusted operating loss of $1 million to $3 million in the unit in the fourth quarter.
ArcBest will host a conference call at 9:30 a.m. ET on Wednesday to discuss third-quarter results.
