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ArcBest finalizes labor contract with Teamsters, reports strong second quarter earnings


ArcBest Corporation (NASDAQ: ARCB) recently finalized a new 5-year contract with the International Brotherhood of Teamsters regarding union members employed at ABF Freight Systems.

The new contract brought “major gains” for members, including vacation restoration, wage increases and health benefit preservation, according to a Teamsters media release.

ArcBest officials spoke to the new agreement during the company’s second quarter earnings call Wednesday.

“With the finalization of our five year agreements with the International Brotherhood of Teamsters following ratification of all supplements, we are well positioned for stability and continued delivery of an excellent customer experience, while keeping costs manageable,” ArcBest President and CEO Judy McReynolds said.

New labor agreement

The agreement includes a national portion and 27 regional and job classification supplements. The final national supplement was ratified in late July.

Initial voting took place in April and May. The new agreement is retroactive to April 1.

“The combined contractual wage and benefit rate, including the ratification bonus and additional vacation time, increases approximately 2 percent on a compounded annual basis throughout the contract period,” according to an ArcBest media release.

The new agreement brings back the 2008-13 vacation schedule based on eligibility and years of service, allowing Teamsters to regain a vacation week given up under the last contract. It will begin accruing on anniversary dates after April 1.

The union also secured lump sum signing payments for full-time employees and wage increases throughout the life of the contract.

“Effective each July 1 of the agreement, hourly wages and mileage equivalents will increase by 30 cents, 35 cents, 40 cents, 45 cents and 50 cents in the last year,” the Teamsters release reads. “Total increases, absent any COLAs [cost-of-living adjustments], will grow by $2 per hour or 5 cents per mile for road drivers over the term of the contract.”

Active, full-time union employees received $1,000 ratification bonuses. Casuals who worked at least 300 hours between September 2017 and March 2018 received $500 bonuses.

“The big thing for me was getting the week of vacation back,” James Rogers, an eight-year ABF employee, said in the Teamsters release. “It’s tough to get anything back once you give it up. Getting raises is also a big plus.”

Union members were able to maintain current health coverage at no cost to the employees despite ArcBest’s attempt to alter this coverage, according to the Teamsters release.

“The union’s negotiating committee knew that maintaining superior health benefits for members and their families was a top priority for ABF Teamsters coming into talks,” the release reads. “From the outset, however, the company was looking to radically alter how all benefits are delivered to Teamsters and was insisting on having all future health and welfare contributions be ‘fixed’ with hard numbers at rates lower than what it was paying to most funds.” 

ArcBest Vice President and CFO David Cobb said the retroactive implementation date cost the company about $1 million in additional expenses during the second quarter of 2018.

“The additional week of vacation has been expensed as it is earned for anniversary dates that began on or after April 1,” Cobb said. “The ratification bonus is being expensed over the 63 month contract beginning April 1.”

Cobb estimated various increases under the new agreement will run ArcBest an additional $1.9 million in the third quarter during the company’s earnings call.

ArcBest financial stats

ArcBest leaders reported growing revenues, strong pricing and an improved freight mix in its LTL business during the company’s second quarter earnings call.

The company reported second quarter consolidated revenues of $793 million compared to $720 million in the second quarter of 2017, a per day increase of 9.3 percent. 

On a GAAP basis, ArcBest’s net income per diluted share plummeted to $0.05 from $0.60 last year. Cobb attributed this to the impact of the New England multiemployer pension withdrawal.

“As detailed in the GAAP to non-GAAP reconciliation table, adjusted second quarter 2018 net income was $1.12 per diluted share compared to $0.56 in the same period of 2017,” Cobb said.

The $37.9 million pension charge is also reflected in the company’s operating income, which came in at $3.2 million for the quarter compared to $25.8 million last year. 

Excluding certain items in both periods, non-GAAP operating income was $41.4 million in the second quarter of 2018 compared to the second quarter of 2017 operating income of $26.1 million, according to an ArcBest media release.

“We were pleased to report a very solid second quarter, once again recording growth in revenue and operating income, particularly in our Asset-Based business,”  McReynolds said. “While shipment levels were down amid slightly lower freight tonnage in our Asset-Based business, our pricing remained strong and we were pleased to see continued growth in revenue per hundredweight. Our Asset-Light business also experienced strong revenue growth on higher pricing, with operating results impacted by higher purchased transportation costs reflecting tight capacity conditions.”

McReynolds said ArcBest benefited from the ongoing positive pricing market and applying the company’s cubic minimum charge space-based pricing model to more accounts.

“The general rate increase we implemented beginning early in the second quarter was successful and its retention continues at high levels,” McReynolds said. “Renewal rate on the deferred and contract pricing agreements that were negotiated during the quarter were solid, and are another contributing factor to our recent strong financial results. We’ve been successful in adding business at better margins while much of the business we’ve lost was operating at lower profitability levels.”

ArcBest’s Asset-Based business reported a 7.8 percent per day increase in revenue year-over-year, climbing from $514.5 million in 2017 to $599.2 million in 2018.

It reported a 0.9 percent tonnage per day decrease and a 6.1 percent shipments per day decrease. Total asset-based weight per shipment was 1,294 pounds, a 5.5 percent increase from last year’s second quarter. Total billed revenue per hundredweight increased 9.4 percent.

The Asset-Based business reported an operating ratio of 99.4 percent, including the pension charge, compared to 95.6 percent last year. On a non-GAAP basis, the company’s operating ratio comes in at 92.6 percent.

“ArcBest’s Asset-Based business continued to benefit from a solid freight environment, the on-going benefits of yield management initiatives and cost controls throughout its freight handling network,” the ArcBest release reads.

ArcBest’s Asset-Light business reported revenue of $247 million, a daily increase of 15 percent over last year’s second quarter. Its operating income came in at $4.7 million compared to 2017’s operating income of $6.7 million. On an adjusted basis, operating income was $4.9 million compared to $6.7 million last year. The Asset-Light business reported a 16 percent increase in revenue per shipment.

“In looking at the future, the indicators we study and the overall operating environment points the strength for the rest of the year,” McReynolds said to end the call. “Against this backdrop, we will continue working on the many initiatives underway to grow ArcBest for our customers, our employees and our shareholders.”

ArcBest’s stock was down 1.7 percent at market close Wednesday.


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Ashley Coker Prince

Ashley is interested in everything that moves, especially trucks and planes. She works with clients to develop sponsored content that tells a story. She worked as reporter and editor at FreightWaves before taking on her current role as Senior Content Marketing Writer. Ashley spends her free time at the dog park with her beagle, Ruth, or scouring the internet for last minute flight deals.