ArcBest's earnings send its stock soaring, even as it reduces some of its activities...as planned

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Some highlights from the first quarter earnings and conference call of ArcBest:

  • The company turned a first quarter 2017 loss, both operating and net, into profits in the first quarter. The earnings per share figure of 29 cts beat consensus by 36 cts, according to SeekingAlpha, which means the projection was for a loss. First quarter operating income was $12.7 million compared to a loss of $9.9 million in the corresponding quarter a year earlier. Asset-based operating income was $13.4 million compared to $8.3 million. Total revenues of $700 million beat forecasts by about $5 million to $8 million, depending on the forecast. ArcBest stock reacted predictably after that report: it soared. After closing Thursday at $36.95, it had jumped about 20% Friday to trade as high as $44.90. 
  • Many of the most illuminating perspectives from earnings calls come during the Q&A session with analysts. But because ArcBest is in the midst of awaiting a ratification vote on a deal reached in late March between the Teamsters and ABF Freight, ArcBest vice president for investor relations David Humphrey kicked off the call by saying they would not take questions given that the ratification vote was wrapping up. SeekingAlpha's transcript of the call is the source for this story. 
  • The call therefore was a one-way presentation. CEO Judy McReynolds described a company that by some measurements saw a decline in business compared to the first quarter of last year but was at that point because it had focused its efforts on certain lines of business while letting others go. "As we continue to shed the unprofitable business in our Asset-Based segment, that doesn’t adequately compensate us for the value we provide, shipments were impacted," McReynolds said, according to a transcript of the conference call supplied by SeekingAlpha. "But we are seeing a profile of freight that is better suited to the type of operations we have." The company's asset-based business posted an increase in revenue to $482.1-million from $464.4-million, a relatively small increase in such a strong trucking market. And tonnage per day was down 3.7%. and shipments per day dropped 9.4%. But total billed revenue per hundredweight was up 8.9%, though fuel surcharges played a role in that increase, according to the company's earnings statement. "During the first quarter, ArcBest Asset-Light business experienced nearly 20% revenue growth despite lower shipment count driven by significant increases in revenue per shipment," McReynolds said. "This resulted from market rate increases associated with the tight capacity of the current truckload market." ArcBest had signaled a different approach toward its pricing last year, when it adopted space-based pricing in its LTL division.
  • The bottom line to all these shifts: operating income in the asset-based business was $13.4 million with an operating ratio of 97.2%, compared to an operating loss of $8.3 million and an operation ratio of 101.8% in the corresponding quarter of 2017. "Yield management initiatives implemented throughout the last year continued to positively impact the Asset-Based business as significant improvements in revenue per hundredweight contributed to a better freight revenue mix and first quarter profitability," the company said in its earnings statement. 
  • McReynolds said two things during the conference call about purchased transportation, a significant issue for asset-light companies in the quarter that have needed to utilize it to help meet contractual requirements. On the one hand, she said ArcBest had realized reduced linehaul costs “because of strategic management of owned assets and the result reductions in the use of purchased transportation.” Still, that transportation was pricey. A strong overall performance by the Asset Light division was impacted "as net revenue margins declined as the increased cost of purchased transportation outpaced improvements in customer rates."
  • The Asset-Based division pulled in an average increase in contract renewals of 4.8% during the first quarter. CFO David Cobb described it was "the second highest first quarter average increase we have secured in the last 19 years." ArcBest had put through a general rate increase (GRI) of 5.9% on April 16. An ArcBest spokeswoman said the GRI generally applies to non-contract customers.