Many favorable revenue and cost initiatives had transportation and logistics provider ArcBest talking up long-term numbers on Monday. The Fort Smith, Arkansas-based company provided the outlook in New York during its first investor day in a decade.
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ArcBest (NASDAQ: ARCB) outlined a plan to generate adjusted earnings per share of $12 to $15 by 2028, which is more than double (at the midpoint of the range) the $6.40 it produced last year. The outlook assumes some recovery in the manufacturing and housing markets, which would alleviate downward pressure on truckload spot rates.
The bulk of the growth is expected to occur in its asset-based segment, which includes less-than-truckload subsidiary ABF Freight.
Shares of ARCB were up 1.4% on Monday compared to the S&P 500, which was up 0.3%.
Asset-based OR target now 87% to 90%
Management issued a new long-term adjusted operating ratio (inverse of operating margin) target of 87% to 90% by 2028. The bullish end of the range would put the carrier close to the 86.4% level it operated at during the last upcycle. (The segment’s adjusted OR was 91.2% last year and 90.4% in 2023.)
Several revenue and expense catalysts were outlined. Foremost, the company has embraced a singular marketing strategy, combining efforts around sales, yield and customer service under the same leadership.
On the asset-based side, the company is forecasting low-single-digit shipment growth annually, a portion of which is tethered to demand recovery in the industrial and housing markets. A sales campaign focused on core accounts has yielded approximately 2,000 incremental daily shipments, with a goal of reaching 4,000 new shipments per day from primary customers by 2028. An expanded daily quote pool is also helping it garner more shipments from small and midsize customers, a market segment where profit per load is 60% higher than national accounts.
High net promoter scores have allowed ArcBest to log 70% tonnage growth at new accounts between years one and two. Revenue per hundredweight, or yield, was up by low-double-digit percentages at these accounts over the same period. Proprietary costing and pricing tools, like its dynamic pricing engine, have allowed it to achieve yields 1.6 times higher than the industry average.
The company also has several cost-reduction initiatives in place, including 70 optimization projects, 45% of which have already been implemented with 25% in the pilot stage.
Recent training enhancements performed at five of its largest terminals produced $12 million in annual cost savings last year. It plans to implement similar sessions across its 240-terminal network.
The first phase of a three-pronged network optimization initiative focused on city route optimization has produced $13 million in annual cost savings. The program leverages AI to reduce manual tasks. A second phase will use demand-predictive tools to improve pickup network routing, while a third phase will focus on making dynamic routing adjustments on the fly.
The company also touted a 4.9% compound annual growth rate in trailer utilization since 2017, with network miles reduced by 8 million since 2021. A 1% improvement equates to $9 million in annual cost savings.
ArcBest expects to see improved customer interfacing and interactions through a new digital customer service platform, ArcBest View, which will roll out next year.
In aggregate, the programs are expected to help the unit push revenue per shipment 80 basis points higher than cost per shipment.
The OR bridge contemplates up to 280 bps of improvement, above the 100 bps embedded in the forecast, if the manufacturing and housing industries (and TL spot rates) normalize to historical levels.
The unit recorded 330 bps of adjusted OR improvement from 2019 to 2024. The bullish end of the new guide would produce 420 bps of improvement from 2024 to 2028.
Asset-light, operating cash flow targets
ArcBest’s asset-light segment, which includes truck brokerage operations, is forecast to see adjusted operating income of $40 million to $70 million by 2028. Like many other brokerage-heavy businesses, it recorded a loss last year. (Asset-light reported a $17.1 million adjusted operating loss in 2024 after generating adjusted operating income of $5.3M in 2023.)
The managed transportation offering generated $13 million in operating income last year and is forecast to double to nearly $25 million (at the midpoint of the range) by 2028. Managed shipments were at an all-time high last quarter and the company said a $1 billion pipeline is still expanding.
Expedite is forecast to generate $15 million in annual operating income (at the midpoint) by 2028, which is slightly below the $17 million it produced on average over the past decade. Improvements in manufacturing and TL rates are the catalysts.
(Truckload brokerage sees $3.5 million in operating income for every $10 improvement in margin per shipment.)
Consolidated operating cash flow is forecast to increase from $300 million annually to between $400 million to $500 million. The past couple of years have experienced elevated capex (5.5% of annual revenue) as more than 800 doors were added to the network. Capital intensity is expected to step down modestly (to below 5% of annual revenue) from 2026 to 2028.
Improved results and lower capex will drive higher returns to shareholders (dividends and share repurchases). ArcBest has returned $500 million to shareholders since 2019 and recently upped its stock buyback plan.
“Our path ahead is defined by our three strategic pillars: accelerating profitable growth, increasing efficiency, and driving innovation,” said Seth Runser, ArcBest CEO-elect and president. “Our people are at the heart of our success, and our expert teams are solving increasingly complex logistics challenges for our customers and partners. We are confident in our clear strategy to deliver long-term value.”
Runser will take over as CEO on Jan. 1, replacing Judy McReynolds, who will continue to serve as the company’s chairman.
