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ArcBest’s Q2 beat underscores successful yield initiatives

Asset-based unit records sub-85% OR

LTL carriers continue to see margin improvement. (Photo: Jim Allen/FreightWaves)

Transportation and logistics provider ArcBest reported record results for the second quarter Friday before the market opened. The company’s asset-based segment, which includes less-than-truckload, used a better freight mix and higher yields to post an 84.5% adjusted operating ratio.

ArcBest (NASDAQ: ARCB) reported adjusted earnings per share of $4.30 for the second quarter, 35 cents better than the consensus estimate and $2.27 higher than the year-ago quarter. The result excluded a few items, including expenses associated with a freight handling pilot as well as acquisition-related expenses.

Consolidated revenue was 47% higher year over year (y/y) at $1.39 billion. Each business unit saw revenue increase by at least double-digit percentages. The large jump on the top line included the benefit of the MoLo brokerage acquisition, which closed in November.

Preliminary results for July show ArcBest’s consolidated revenue is 36% higher y/y, with all divisions seeing increases.

“Demand is still strong from our customers,” Dennis Anderson, chief customer officer, told analysts on a conference call.

“Supply chains are still disrupted. If you look at the constraints that are still out there in terms of labor availability, certainly component availability for manufacturers … it creates freight demand even when inventories are high on the retail [side].”

Table: ArcBest’s key performance indicators

Revenue in the asset-based unit increased 23% y/y to $803 million in the quarter. Tonnage was 3.7% higher, and revenue per hundredweight, or yield, increased 17.7%. The yield metric benefited from higher fuel surcharges. Excluding fuel, LTL yield was up by a “percentage in the double digits,” a separate filing showed. Contract renewals in the division increased 8% y/y in the quarter, compared to a 9% growth rate in the 2022 first quarter.

The improved yield metrics led to 450 basis points in OR improvement (84.5% adjusted OR). The salaries, wages and benefits line as a percentage of revenue in the asset-based segment was the biggest mover, down 540 bps y/y. Management sees further margin improvement opportunities as a high number of recently onboarded and less experienced workers come up to speed.

So far in July, asset-based revenue per day is 18% higher y/y. Tonnage is up 6% and yield inclusive of fuel surcharges is 11% higher.

Asset-light revenue, which includes brokerage, increased 91% y/y to $632 million. The division saw 220 bps of y/y margin improvement, posting a 94.5% OR. Daily revenue is 76% higher y/y in July.

Net cash flow from operations increased 27% y/y to $185 million through the first half of 2022. ArcBest ended the quarter with just $22 million in net debt (0.04x net debt-to-earnings before interest, taxes, depreciation and amortization).

The company reeled in its 2022 capex budget. It now plans to incur net capital expenditures between $240 million and $250 million, $35 million lower at the midpoint of the range. The spending will include $115 million in equipment purchases and $45 million to $55 million in real estate outlays.

The 2022 delivery schedule for new 28-foot trailers will spill into 2023 given production delays.

The expectation is that the real estate and capacity additions will expand shipment capacity by a mid-single-digit percentage by the end of the year.

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.