ArcBest’s Q2 beat underscores successful yield initiatives

“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].”

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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