ArcBest's efficiency initiatives helping offset soft demand

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6 days ago

ArcBest leaned on belt tightening and efficiency initiatives to partially offset weak demand during the second quarter. The company said it is 'adding good new profitable business to the network' even as the less-than-truckload industry contends with protracted weakness in the manufacturing and housing segments.
Revenue at ArcBest's (NASDAQ: ARCB) asset-based unit, which includes less-than-truckload subsidiary ABF Freight, came in flat year over year at $713 million. Tonnage per day was up 4.3% y/y but revenue per hundredweight, or yield, was off 3.1%.
The carrier had an easy tonnage comparison to the year-ago quarter (negative-20.3%) but faced a stiff yield comp (plus-23%). ABF is relying on a dynamic pricing model to drive equipment utilization higher. The formula provides discounts to fill space on equipment that is required to move through the network even if it isn't full.
Asset-based tonnage was up y/y by 3.6% in April, 6.3% in May and 2.8% in June. However, preliminary results for July showed tonnage was flat y/y even against a notably negative comp from a year ago (negative-12.5% in July 2024).
On a two-year-stacked comparison, July was ArcBest's best tonnage result since February 2024.
The carrier is up against an easier tonnage comp (negative-11.3%) in the third quarter. The yield comp (plus-7.4%) steps down as well.
ABF is focused on growing share among its core accounts and said it is having success at small-to-medium size shipper accounts where rate competition is typically less severe. However, other carriers have been targeting this shipper segment in recent quarters, which could ultimately limit rate gains.
Contractual rate increases averaged 4.0% in the quarter, a 9.1% increase on two-year-stacked comparison.
ABF recently announced a 5.9% general rate increase, which will take effect on Monday. It took a similar increase last September. The cadence of GRIs across the industry has shortened from annual implementations to approximately every 10 to 11 months.
The asset-based unit reported a 92.8% adjusted operating ratio (inverse of operating margin), which was 300 basis points worse y/y. The OR improved 310 bps sequentially, which was in line with the carrier's historical sequential improvement rate of 300 to 400 bps.
Management said it expects to see roughly 70 bps of sequential OR improvement from the second to the third quarter, which is in line with historical trends. That implies a 92.1% OR for the third quarter, which would be 110 bps worse y/y.
Terminal efficiency initiatives have generated a total of $14 million in cost savings at 18 service centers so far this year. The company sees ample cost levers from the program moving forward.
ArcBest's asset-light segment, which includes truck brokerage, reported an adjusted operating profit of $1.1 million after seven consecutive quarterly losses. The unit is expected to see breakeven results to $1 million in adjusted operating income in the third quarter.
Asset-light revenue was down 14% y/y to $342 million in the quarter, but just 7% lower y/y in July.
ArcBest reported second-quarter adjusted earnings per share of $1.36 on Wednesday ahead of the market open. The result was 10 cents light of the consensus estimate and 62 cents lower y/y.
The company continues to target the low end of a 2025 net capex guidance range of $225 million to $275 million, which it describes as mostly maintenance spending.
Approximately $130 million to $140 million is designated for rolling stock, $60 million to $80 million is slated for real estate projects, and the remainder will be used to make IT and dock equipment upgrades.
ArcBest ended the quarter with approximately $400 million in available liquidity, a $50 million increase from the first quarter.
The company also announced its first investor day in a decade. The event will take place on Sept. 29.
Shares of ARCB were down 13.4% at 2:50 p.m. EDT on Wednesday compared to the S&P 500, which was up 0.1%. It was a down day for the LTLs as peer Old Dominion Freight Line (NASDAQ: ODFL) posted slightly worse-than-expected results earlier in the day.
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