ArcBest 2015 net income down 2.8%, fourth quarter income below expectations (Updated)

Editor’s note: Story updated with section at the end of this report.

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It was tough fourth quarter for Fort Smith-based ArcBest Corp., with a decline in tonnage and shipments resulting in net income of $4.989 million, well below the $14.543 million in the same quarter of 2014 and well below analyst estimates.

The transportation and logistics company’s fourth quarter earnings per share (non-adjusted) were 19 cents, below the consensus estimate of 41 cents per share. Revenue for the quarter was $648.134 million, below the $664.848 million in the same quarter of 2014.

For the full year, net income was $44.854 million, just under the $46.177 million in 2014. Per share earnings for the year were $1.67, below the consensus estimate of $1.96. Full year revenue totaled $2.666 billion, ahead of the $2.612 billion in 2014.

The company said quarterly and annual numbers were hurt because of reduced freight demand resulting from weakness in the manufacturing sector, continued high inventory levels thanks to less-than-expected consumer spending, and reduced fuel surcharge revenue from lower diesel prices. According to ArcBest, U.S. manufacturing fell to levels not seen since 2009.

“While weakness in the industrial and manufacturing segments of the economy accelerated toward the end of 2015, we made significant progress throughout the year to improve operations at ABF Freight and also provide the full suite of complementary asset-light logistics services our customers seek from us,” ArcBest President and CEO Judy McReynolds said in the earnings report.

She also said the company’s “continued emphasis on customer service led to challenges in aligning costs with the lower business levels.”

The company is prepping for more economic uncertainty to continue in 2016.

“As we move through 2016 during a period of economic uncertainty, we will closely monitor our cost structure and work to manage our labor levels consistent with business trends.  Our goals for this year include accelerating efforts to provide customers with easier access to all of our services, continued improvements in operations and ongoing investments in technology and enterprise solutions among other initiatives,” McReynolds noted in the report.

Key indices for the company were negative in the fourth quarter compared to the same quarter in 2014. Tonnage was down 4.1%, shipments were down 0.7%, and billed revenue per hundredweight was down 1.1%. For the year, tonnage was down 1.5%, shipments were up 2.4% and billed revenue was up 0.8%.

Despite the challenging year and quarter, the company was able to manage margins, with overall operating income during 2015 totaling $75.496 million, up more than 9% compared to 2015. Most of the gain was from ABF Freight, a less-than-truckload company that is the biggest subsidiary of ArcBest.

Operating Income (2015)
ABF Freight
2015: $62.436 million
2014: $50.093 million

Panther (Premium Logistics)
2015: $10.798 million
2014: $15.64 million

Fleetnet
2015: $2.954 million
2014: $3.122 million

ABF Logistics
2015: $5.861 million
2014: $3.835 million

ABF Moving
2015: $4.836 million
2014: $3.179 million

The company, as it often does, boosted its cash holdings during the year. Cash and cash equivalents at year end were $164.973 million, better than the $157.042 million at the 2014 year end.

McReynolds also praised the company’s ability to connect customers between its trucking division and its non-trucking – “asset-light” – operations.

“By the end of 2015, 23 percent of the ABF Freight account base also transacted business with ABF Logistics or Panther. In 2011, that figure was just 6 percent. The 2015 investments we have made in our enterprise services are allowing us greater penetration of these accounts through the single point of contact they desire from ArcBest as a trusted logistics provider,” McReynolds said.

Company shares (NASDAQ: ARCB) closed Tuesday at $21.01, up 10 cents. During the past 52 weeks the share price has ranged from a $43.68 high to a $16.43 low.

UPDATED INFO
During a conference call, McReynolds and other ArcBest officers provided the following information.

“Given the current slow economic environment we have taken actions to further reduce our labor force and better align it with the number of shipments moving through our network. We currently have over 200 docks treating yard employees in lay off status and many other personnel reductions have resulted from attrition. In January 2016, we’ve reduced our docks and city labor force by 4% compared to fourth quarter 2015, compared to January of last year that reduction is 3.3%,” McReynolds said.

The company is also not filling all positions that open up from retirements, “and that’s actually been quite a number of people that we’re not replacing those positions in this kind of an environment,” according to McReynolds.

ABF Freight System has almost completed the install of electronic logging systems two years ahead of the federal mandate. McReynolds noted: “In addition to the necessary industry compliance there are other advantages in cost savings we have to gain from them. And those include capturing real time data for improved labor and resource management and GTS capabilities. The rapid pace of technological changes in the logistics industry and our efforts to equip our employees with the tools they need to most effectively serve customers, drive our information technology initiatives. We’re investing in many new initiatives to improve efficiencies and lower cost.”

The complete conference call transcript can be found at this Seeking Alpha webpage.