ArcBest second quarter income up 16%, YTD income up more than 72% (Updated)

ArcBest Corp. posted second quarter net income of $19.967 million, up 16% compared to the same quarter of 2014, thanks in large part to a more than 13% reduction in fuel and supplies expenses and an almost 2% boost in tonnage shipped.

Per share earnings for the Fort Smith-based transportation holding company (formerly known as Arkansas Best Corp.) was 74 cents, better than the consensus estimate of 73 cents per share. Second quarter revenue of $696.115 million was up 5.05% compared to the second quarter of 2014, and also beat the consensus estimate of $691.99 million.

"ArcBest posted strong results this quarter, with our highest second quarter revenue ever,” ArcBest President and CEO Judy McReynolds said in the earnings report released early Monday (Aug. 3). "I am pleased that our strategic investments in an expanded set of service offerings are resulting in a greater percentage of customers turning to the ArcBest companies for solutions to their supply chain challenges.”

For the first six months of the year, net income totaled $20.712 million, up 72.38% compared to the $12.015 million during the same period of 2014. Total revenue during the first half of the year totaled $1.309 billion, up 5.89% compared to the $1.236 billion during the first half of 2014.

The company’s largest subsidiary is ABF Freight, one the largest less-than-truckload carriers in the country. Tonnage shipped by ABF Freight was up 1.9% in the second quarter and is up 0.4% during the first half of the year. Shipments were up 4.5% during the quarter and are up 5.1% during the first half of the year.

Fuel and supplies expenses totaled $158.673 million during the first half of 2015, down $25.394 million, or almost 14%, compared to the same period of 2014.

Operating income at ABF Freight totaled $28.135 million during the first half of 2015, a big improvement over the $10.653 million during the same period of 2014.

Although tonnage was up overall 1.9% in the second quarter, ArcBest execs said in a conference call with analysts that the quarter ended with tonnage down 1.1% in June and trending about 1% in July.

“Throughout the second quarter, in order to maintain resources for our traditional LTL (less than truckload) customers, we intentionally reduced the amount of volume business we handled,” McReynolds said during the conference call. “Our LTL business experienced solid year over year increases in April and May, while LTL demand moderately increased in June. We are now beginning to compare back to the second half of 2014 when tonnage growth in the LTL portion of our business was very strong.”

McReynolds also said the overall U.S. freight environment “is a little softer” in 2015 compared to 2014.

“And again, remember that you’re comparing back to 2014 that was very strong. And what we’ve seen happen though is there has been some model shift a little bit where you’ve seen some of the business that was handled by LTL carriers going back to truckload carriers because they have the capacity and availability to do that, which that tells me that the demand is another, I guess, piece of evidence to point to that the demand hasn’t been as strong in 2015 as it was in 2014,” she explained.

‘ASSET-LIGHT’ BUSINESS GAINS
The company continued to gain ground on its goal of diversifying revenue. Revenue in its non-trucking businesses – what the company now calls “asset-light logistics businesses” – during the quarter was $204.9 million, better than the $178.1 million during the same quarter of 2014. The non-trucking businesses (Panther Logistics, Fleetnet, ABF Logistics, and ABF Moving) accounted for 29% of total second quarter revenue, up compared to 27% in the same quarter of 2014.

“Truckload brokerage activity drove the second quarter revenue and margin increases at ABF Logistics as additional business was added with both new and existing shippers,” the company noted in the earnings report. “ABF Moving's revenue and margins benefited from increased market opportunities associated with the beginning of the traditional summer moving season.  Panther's second quarter profitability improved over the previous year due to moderately higher shipment gross margins and cost management.”

Operating income for the non-trucking businesses during the first half of 2015 totaled $12.347 million, ahead of the $10.994 million during the first half of 2014.

Operating Income (Jan.-June)
Panther (Premium Logistics)
Jan.-June 2015: $6.033 million
Jan.-June 2014: $7.722 million

Fleetnet
Jan.-June 2015: $2.187 million
Jan.-June 2014: $2.101 million

ABF Logistics
Jan.-June 2015: $2.583 million
Jan.-June 2014: $1.389 million

ABF Moving
Jan.-June 2015: $1.634 million
Jan.-June 2014: -$218,000

The company, which carries little debt, used cash flow from improved results to boost its cash position. Cash and short-term investments totaled $245.852 million as of June 30, better than the $202.951 million at June 30, 2014.

ArcBest has posted two consecutive years in the black. Full year net income in 2014 was $46.177 million, up 192% compared to the $15.811 million in 2013, and a wide swing from the $7.7 million loss in 2012. Total revenue during 2014 for the publicly held company (NASDAQ: ARCB) was $2.612 billion, up 13.6% compared to 2013.

Company shares (NASDAQ: ARCB) closed Friday at $33.05, up 63 cents. During the past 52 weeks the share price has ranged from a $47.52 high to a $29.39 low.

ArcBest also on Monday announced that Kathy McElligott and Stephen Gorman were named to the publicly held company’s board of directors.

McElligott, 59, is executive vice president and chief information and technology officer of McKesson Corp. (NYSE: MCK), a San Francisco-based healthcare services and information technology company and the largest pharmaceutical distributor in North America.

Gorman, 60, is CEO of privately held Borden Dairy Co., a Dallas-based fresh milk and dairy company, where he has served since July 2014. Prior to that, he was executive vice president and COO of Delta Air Lines Inc. from 2008 until 2014.

NATIONAL ECONOMIC ENVIRONMENT
The quarterly and first half of 2015 results for ArcBest comes amid mixed economic reports.

The U.S. Bureau of Economic Analysis reported July 30 that real gross domestic product in the U.S. rose 2.3% in the second quarter of 2015. The new GDP report shows that second quarter growth is well ahead of the revised 0.6% real GDP growth in the first quarter, but slightly behind the final GDPNow model forecast of 2.4% projected by the Atlanta Fed on July 27.

The American Trucking Associations’ Truck Tonnage Index was down 0.5% in June and followed a revised gain of 0.8% in May. Year-to-date, tonnage is up 3.4%. ATA Chief Economist Bob Costello said a decline in factory output and retail sales resulted in less tonnage shipped during June. He said tonnage demand may not recover in the third quarter.

“I also remain concerned over the elevated inventory-to-sales ratio for retailers, wholesalers, and manufacturers, which suggests soft tonnage in the months ahead until the ratio falls,” Costello said in his June tonnage report.

The Cass Freight Index showed that June shipments were down 3.4% compared to June 2014, and shipment expenditures were down 5.8%. Rosalyn Wilson, a supply chain expert and senior business analyst with Pasadena, Calif.-based Parsons, who provides economic analysis for the Cass Freight Index, said the slow June follows a slow first quarter that dragged into the second quarter.

“Manufacturing was very weak for the first half of 2015, but started to recover in June. First quarter orders were sluggish because of both bad weather and shipments that got tied up in the West Coast port problems. The strength of the U.S. Dollar in world markets has severely curtailed exports, which has contributed to the drop in manufacturing,” Wilson noted in her report.