Executives at ArcBest touted a strong business pipeline on a quarterly call with analysts on Tuesday, but noted that demand is still stabilizing and remains “below mid-cycle norms.” It said a weak housing market and lingering softness in parts of manufacturing remain the headwinds. However, pricing is on the rise as the less-than-truckload industry “remains rational” and as the truckload market benefits from structural capacity reductions.
ArcBest (NASDAQ: ARCB) reported a first-quarter net loss of $1 million, or 5 cents per share. Adjusted earnings per share of 32 cents were 19 cents worse year over year, but 3 cents ahead of consensus.
Consolidated revenue was up 3% y/y to $999 million and in line with consensus. Volume and rate trends have firmed into April. The company’s digital quote pool, which has visibility into 250,000 shipments each day, is driving the improvement.
Asset-based OR likely flat y/y in Q2
The asset-based unit, which includes LTL subsidiary ABF Freight, reported a 2% y/y increase in revenue per day during the first quarter. Daily tonnage increased 6.5% (ahead of management’s guidance for a 4% to 5% y/y increase) while yield fell 4%. The tonnage growth was due to a 2% increase in shipments and a 5% increase in weight per shipment as more TL-rated shipments were in the network.
The higher shipment weights were a drag on the yield metric. Revenue per shipment was up 1%.
Tonnage is moving higher even as the prior-year comps stiffen. On a two-year-stacked comparison, tonnage moved from roughly flat in the first two months of the year to plus-5.1% in March. So far in April, tonnage per day is 5% higher y/y (plus 8.6% on a two-year comparison) as a 6% increase in weight per shipment is more than offsetting a 1% dip in shipments.
Contractual rate increases averaged 6.3% in the quarter, the highest average since the 2022 third quarter. Over the past two years, contractual rates are up 10.3%.
The segment recorded a 97.3% adjusted operating ratio (inverse of operating margin), 140 basis points worse y/y and 110 bps worse than the fourth quarter. The result was in line with management’s guidance for 100 to 200 bps of sequential deterioration.
Wages and benefits costs (as a percentage of revenue) increased 100 bps y/y as the company onboarded staff to handle higher volumes. Also, an annual increase in union wages was a headwind. Depreciation and amortization expenses were 80 bps higher y/y.
The company is using training and technology to lower costs. It said a training improvement program across 75% of the terminal network has reduced costs by $32 million (annualized). An AI-led city route optimization, which is still in the early stages, has generated $15 million in annual cost savings.
The asset-based unit is forecast to see 400 to 500 bps of sequential OR improvement in the second quarter, which is 100 bps better than typical seasonality at the midpoint of the range. That implies a 92.8% OR, which would be flat y/y.
Revenue per day in April is 9% higher y/y due to a 10% increase in revenue per shipment. Management flagged the potential for TL rate increases in the low- to mid-double-digit range in the second and third quarters after capturing low- to mid-single-digit increases in the first quarter.
Less-than-truckload fuel surcharge programs include a step function as diesel prices rise, typically resulting in margin accretion.
Asset-light expected to remain profitable
The asset-light segment, which includes truck brokerage, reported adjusted operating income of $2.8 million, which was above the high end of management’s “up-to-$2-million” guidance. Management said the unit saw record-low selling, general and administrative expenses (per shipment) in the quarter. Productivity was at an all-time high, with shipments per person per day increasing by 26%.
Revenue was 6% higher in the first quarter, but revenue per day is running 24% higher y/y so far in April. Daily shipments are up 17% y/y due to growth in its managed transportation offering, with higher fuel costs driving a 7% increase in revenue per shipment.
Adjusted operating income of $1 million to $3 million is forecast for the second quarter.
Shares of ARCB were up 1.3% at 11:51 a.m. EDT on Tuesday compared to the S&P 500, which was down 0.8%.
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