ArcBest reported a modest year-over-year revenue increase in its asset-based segment in August following no change in July. However, the carrier lowered its third-quarter margin outlook for the unit, given ongoing macro headwinds and higher costs.
Asset-based revenue per day, which includes results from less-than-truckload subsidiary ABF Freight, increased 2% y/y in August, primarily driven by a 2% increase in tonnage with no change in average yield. The August tonnage result was the combination of a 5% increase in daily shipments, which was partially offset by a 3% decline in weight per shipment.
ArcBest (NASDAQ: ARCB) said it’s getting more freight from core accounts but overall demand weakness in the manufacturing and housing sectors is pushing shipment weights lower.
Data released last week showed manufacturing activity remained in contraction territory again during August. The Purchasing Managers’ Index (PMI) registered a 48.7 reading for the month (50 is neutral), placing it in negative territory for 32 of the past 34 months. (The dataset typically leads inflections in LTL volumes by approximately three months.)
The PMI new orders subindex – a signal for future activity – moved into expansion territory (51.4) after six consecutive months of decline. However, the dataset remained below 52.1, which the report identifies as the threshold required for sustained increases in manufacturing orders.
On a two-year-stacked comparison, ArcBest’s asset-based tonnage was down 7.9% in August, which was an improvement from an 11.2% decline in July and the high-teens declines seen earlier in the year.
New OR guidance approximately 100 bps worse
The company is now calling for the operating ratio (inverse of operating margin) in its asset-based segment to be flat to 50 basis points worse in the third quarter than it was in the second quarter. That implies a 93.1% adjusted OR at the midpoint of the range, which would be 210 bps worse y/y.
ArcBest’s prior outlook called for 70 bps of sequential improvement in the third quarter, which implied a 92.1% OR. That initial guide was in line with historical seasonal patterns.
(The revised outlook excludes the impact from an approximately $16 million pretax gain on the sale of real estate that is expected to be booked in the quarter.)
In addition to the lighter shipment weights, ArcBest called out higher cartage expenses as a detractor to the third quarter. It is using more outside capacity to accommodate recent business wins in some markets. These costs are expected to step down over time as it appropriately staffs the impacted locations.
ArcBest also said a recent pricing review has “identified account- and lane-level adjustments,” which will lift overall LTL pricing and “enhance profitability.” The company has seen modest y/y declines in yields of late (down 3.1% in the second quarter, down 1.2% in July and flat in August) even as lower shipment weights benefit the yield calculation.
Prior-year comps have been a headwind (up 23% y/y in the 2024 second quarter, up 15.4% y/y in July 2024 and up 3.7% in August 2024) but will continue to ease in the coming months.
ABF implemented a 5.9% general rate increase across multiple tariff codes on August 4. It took a similar increase in September 2024.
ArcBest reiterated third-quarter operating income guidance for its asset-light segment, which includes truck brokerage operations. The unit is expected to see breakeven results to $1 million in adjusted operating income in the period.
Asset-light revenue is down 8% y/y through the first two months of the third quarter as a 10% decline in revenue per shipment has only been partially offset by a 2% increase in volumes. Purchased transportation expense (as a percentage of revenue) remains steady at 85%.
Shares of ARCB were down 3.2% in early trading on Tuesday compared to the S&P 500, which was up 0.1%.
