ArcBest Reports Q1 Revenue, Earnings Decline

(John Sommers II for Transport Topics)

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ArcBest Corp. experienced a year-over-year decline in revenue and earnings due to a softer freight environment and the sale of its fleet maintenance subsidiary during the first quarter of 2023, the company reported April 28.

ArcBest ranks No. 14 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.

The Fort Smith, Ark.-based supply chain logistics company posted net income from continuing operations of $18.8 million, or 75 cents per diluted share, for the three months ending March 31. That compared with $68 million, or $2.62, during the same time the previous year. Total revenue decreased by 12.8% to $1.11 billion from $1.27 billion.

ArcBest completed the sale of its fleet maintenance and repair services subsidiary FleetNet America during the quarter. The sale included an after-tax gain of $51.4 million, which is subject to post-closing adjustments. Net income when including discontinued operations was $71.3 million, or $2.84 per diluted share, compared with $69.6 million, or $2.68, during the same time last year.

“ArcBest is a company that thinks and plans for the future,” ArcBest CEO Judy McReynolds said during a call with investors. “We’re always striving to anticipate the needs of our customers and the market, manage short-term and long-term risk and execute to the highest level. And it is this mentality that has driven our outperformance over the last several years, and nothing has changed as we face a softer economic environment leading to reduced customer demand.”

McReynolds credited the quarterly performance to a yearslong process to expanded solutions to better meet the needs of customers. She pointed to pricing intelligence offerings providing the ability to fill capacity more precisely in the locations where it is needed.

“Today, we have much better visibility into demand and costs across our business, which provides the ability to make precise changes that have a meaningful impact versus taking a broad-brush approach,” McReynolds said. “And as the environment has evolved, we’ve doubled down on effectively managing personnel costs and equipment while continuing to deliver to our customers.”

McReynolds added the commitment to that growth strategy and cost management has demonstrated results. She noted the company continues to diversify its customer mix across industries and drove an average 10% increase in its customer base. She also noted retention remained solid across all segments.

Press Release: ArcBest Announces First Quarter 2023 Results: https://t.co/CnLpoEhIkt pic.twitter.com/N4HFOMwqVd — ArcBest (@ArcBestCorp) April 28, 2023

“While we experienced pressure on truckload spot rates, which decreased from fourth-quarter levels, we grew shipments and won new customers despite that trend,” McReynolds said. “This is a testament to the strength of our truckload solution and our ability to balance contract and spot business levels based on the macro environment.”

The asset-based segment revenue decreased 1.1% to $697.8 million from $705.3 million during the 2022 period. This was influenced by reduced customer order quantities related to softness in the general economy. Total tonnage per day increased 2.7% compared with the year-ago period. But total billed revenue per hundredweight decreased 3.9%. Operating income decreased 40.6% to $47.5 million from $80 million last year.

“In the asset-based business, industry pricing remains rational,” McReynolds said. “ArcBest continues to price appropriately to reflect our high-quality service offerings. Our core pricing is strong with a nearly 10% increase year-over-year. The dynamic pricing tool we built a few years ago enables us to precisely place profitable shipments throughout the asset-based network to fill underutilized capacity.”

ArcBest has taken steps to further reduce cartage, purchased transportation, equipment rentals and other outside resources in the asset-based segment. It expects those steps to positively impact second-quarter operating expenses.

“We carefully manage the volume of transactional shipments to supplement our core LTL business based on market dynamics,” McReynolds said. “Having this lever to drive profitable business has enabled us to largely avoid layoffs up to this point. While we showed resilience in our performance, that has not deterred our focus on working efficiently and driving success through the power of our innovative and integrated solutions. We are continuing to invest in key aspects of our company and strategy to accelerate revenue growth.”

Asset-light revenue decreased 26.4% to $438.1 million from $595.3 million during the year-ago period. The report noted that lower customer demand and reduced market rates combined with changes in business mix contributed to a decrease in total revenue. Total daily shipments during the recent quarter increased slightly versus the prior year due to truckload shipment growth, despite decreases in expedite shipment counts. But the decrease in revenue per shipment contributed to reduced profitability.

Operating margins for the asset-light segment were further pressured by increases in operating expenses. ArcBest noted that additional reductions will be implemented in employee-related and outside services costs to better align with business levels. The segment reported an operating loss of $14.1 million, compared with operating income of $21.1 million last year.

Stephens noted in a report that the 1Q results came in modestly better than its model due to stronger-than-expected tonnage in March. The private investment banking company added there was a wide miss from the consensus estimate due to a combination of asset-based operating ratio and asset-light brokerage operations underperformance. 

“Looking forward, while ARCB is seeing stronger tonnage in recent months (including April) than many of its peers as it is working to capture more 3PL volume via dynamic pricing, underlying business trends are underperforming seasonality,” Stephens analyst Jack Atkins wrote in the report. “We are encouraged that pricing to core-LTL customers was up in the high single digits in the 1Q and is up in the mid-single digits in April.”

Bank of America lowered its rating to underperform from neutral with the earnings outlook decelerating and its purchase orders decreasing to $91 from $101. The financial services company noted in a report that counter to the pricing-focused strategy among leading operators, ArcBest moved to sell its excess capacity at lower rates while holding its labor union capacity. 

“We expect rising margin pressure from a lower share of core LTL freight within its portfolio, which we reflect in our lower-than-peer multiple,” Bank of America analyst Ken Hoexter said. “We see its Teamsters contract expiry in July as an uncertainty given an antagonistic labor backdrop.”