ArcBest booked another large tonnage decline in its asset-based unit during the first quarter as it purges transactional freight from its network in favor of a mix more weighted to shipments from core customers. The swap is generating big improvements in yields, but revenue continues to sag. It expects the large year-over-year (y/y) swings to calm by the third quarter.
The company leaned on a dynamic pricing model during the downturn, pricing certain lanes at lower rates to keep the network filled with freight. That allowed ArcBest to prop up equipment and labor utilization as demand fell across the industry.
ArcBest’s (NASDAQ: ARCB) asset-based segment, which includes less-than-truckload operations, reported revenue of $672 million, a 4% y/y decline. Tonnage per day was down 17% while revenue per hundredweight, or yield, increased 16%. The tonnage decline was the combination of a 6% decline in daily shipments and an 11% decline in weight per shipment.
Daily tonnage was down 6% from the fourth quarter while yield was off 1%.
The declines accelerated into April, with tonnage falling 22% y/y and 21% on a two-year-stacked comparison. Declines in both the y/y and two-year comps have accelerated from a February low. January (down 18% y/y) was impacted by severe winter storms. February was off 13.9% and March was down 17.9%.
Management said freight demand from core accounts was in line with normal seasonal trends from the fourth to first quarter. In the first quarter, core shipments increased 12% y/y and tonnage was up 9%. So far in April, core shipments are up 13% y/y and tonnage is 9% higher.
The y/y declines should moderate in the third quarter as the company laps the tough comps. It reversed course on its dynamic pricing initiative near the end of the 2023 second quarter when it became clear Yellow Corp. (OTC: YELLQ) would likely fail. Yellow’s customers started seeking other capacity options weeks ahead of its eventual shutdown, allowing ArcBest and the rest of the industry to onboard more share from contractual customers.
ArcBest said catalysts for tonnage increases include a return of freight that left the industry for cheap truckload pricing, a pickup in the industrial economy and more share from primary accounts.
Table: ArcBest’s key performance indicators
The improved freight mix boosted yield metrics in the first quarter, although the drop in weight per shipment was a tailwind. Pricing on contract renewals and deferred agreements was up 5.3% y/y in the quarter, following a 5.6% increase in the fourth quarter.
The asset-based segment recorded a 92% adjusted operating ratio, 30 basis points better y/y but 430 bps worse than the fourth quarter. Salaries, wages and benefits as a percentage of revenue increased 330 bps y/y, mostly due to the new labor contract with its union workforce.
The segment normally sees 200 to 300 bps of OR improvement from the first to second quarter. Management didn’t provide a definitive guide for the second quarter this year.
The unit appears to have some favorable operating leverage in the back half of the year as core rate increases likely outpace labor inflation. Its five-year labor contract with the Teamsters union became effective July 1 last year with more than half of the total wage increase being implemented in the first year.
ArcBest missed first-quarter expectations ahead of the market open on Tuesday, reporting a net loss of $2.9 million, or 12 cents per share. Excluding items the company considers nonrecurring (various costs from technology pilots and acquisition-related expenses), it reported adjusted earnings per share of $1.34, 19 cents light of consensus and 24 cents lower y/y.
The adjusted result excluded a $21.6 million write-off of its equity investment in Phantom Auto, which shut down during the period. Phantom Auto developed technology allowing remote control of forklifts and yard trucks. ArcBest said the void has been filled with another technology it has created — Vaux Smart Autonomy.
The company’s asset-light unit, which includes truck brokerage, weighed down results.
The unit reported a $15.3 million operating loss, a $4.7 million loss on an adjusted basis. Revenue was off 10% y/y to $396 million. Managed transportation shipments per day increased 14%, but revenue per shipment was down 20%.
Poor weather in January, which sent TL spot rates (purchased transportation expenses) higher, was cited as the culprit. Purchased transportation costs as a percentage of revenue have continued to step lower since January. Management believes efficiency and productivity initiatives will allow more revenue (including rate increases) to fall to the bottom line when the market corrects.
The company reiterated net capital expenditures of $325 million to $375 million for 2024. The capex budget includes $155 million in equipment purchases and $130 million for real estate projects. ArcBest will also invest in technology and upgrade dock equipment.
Shares of ARCB were off 14.6% at 11:36 a.m. EDT on Tuesday compared to the S&P 500, which was off 0.7%. Shares of other LTL carriers were flat to down 3% at the time, continuing a notable sell-off since Old Dominion Freight Line (NASDAQ: ODFL) reported results on Wednesday. Most LTL stocks are down midteen percentages to mid-20% over the past week.
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