Quarterly income down 32% at ArcBest, non-trucking segments see revenue gains

Third quarter income for Fort Smith-based ArcBest Corp. was down more than 32%, and income in the first nine months of 2016 is down 57.2% compared with the same period in 2015.

The quarterly income of 49 cents per share was just above the consensus estimate of 48 cents per share among the 11 analysts who cover the company.

Revenue in the third quarter ended Sept. 30 was $713.923 million, above the $709.38 million in the same quarter of 2015. Revenue for the shipping and logistics holding company topped the consensus estimate of $697.5 million. Revenue in the first nine months of 2016 totals $2.012 billion, below the $2.018 billion in the same period of 2015.

ABF Freight, ArcBest’s largest subsidiary and one of the nation’s largest less-than-truckload (LTL) freight haulers, saw a per day tonnage dip of 2.8% in the third quarter. Shipments per day in the quarter were up 1.6% compared with the same quarter in 2015. For the first nine months, tonnage is down 1.9% and shipments are up 1.9%. Billed revenue per shipment is down 3.2% for the first nine months compared with the same period in 2015.

“As we have seen throughout the year, pricing in the less-than-truckload sector remained rational despite a soft economic environment and we continued to experience benefits from investments in new equipment,” ArcBest Chairman, President and CEO Judy McReynolds said in the earnings report posted early Thursday (Nov. 3). “In addition, we continued to expand our asset-light logistics service offerings with the acquisition of Logistics & Distribution Services, as we add further scale to the full supply chain solutions our customers are seeking.”

ABF FREIGHT
The company said revenue in the LTL segment was hurt by a reduction in fuel surcharge revenue compared to the third quarter of 2015, a “sluggish economy,” and a margin squeeze associated with the labor costs of handling less tonnage but more shipments.

ABF Freight revenue in the quarter was $509.452 million, down from $511.346 million in the same quarter of 2015. Revenue in the first nine months of the year is $1.435 billion, below the $1.456 billion in the same period of 2015.

Quarterly operating income in the segment was $18.05 million, down from $26.577 million in the same quarter of 2015. Operating income in the first nine months of 2016 is $26.423 million, down 51.7% compared with the same period in 2015.

“With lower weight and revenue per shipment, the labor hours and local purchased transportation required to service the growing shipment levels impacted operating margins. Higher average claims costs for nonunion healthcare also unfavorably impacted the quarter,” the company noted in the earnings report.

ASSET-LIGHT SUBSIDIARY PERFORMANCE
Third quarter revenue in ArcBest’s four asset-light (non-trucking) segments was $217.92 million, better than the $211.11 million in the same quarter of 2015. Revenue for the first nine months totaled $617.835 million, also better than the $599.762 million in the same period of 2015.

The four segments accounted for 30.5% of total company revenue, just above the 29.7% in the same quarter of 2015.

“We are encouraged by the improvements seen at Panther during the quarter and were pleased to welcome the Logistics & Distribution Services group to the ArcBest organization. As we have continued to invest in all of our businesses, we are making good progress in giving our customers the end-to-end solutions they require from us,” McReynolds said in the statement.

Even with higher revenue in the segments, operating income is down in all areas for the quarter and the first nine months of the year.

Panther Logistics (operating income)
Jan.-Sept. 2016: $5.331 million
Jan.-Sept. 2015: $8.767 million

ABF Logistics (operating income)
Jan.-Sept. 2016: $1.572 million
Jan.-Sept. 2015: $4.375 million

FleetNet (operating income)
Jan.-Sept. 2016: $1.701 million
Jan.-Sept. 2015: $3.143 million

ABF Moving (operating income)
Jan.-Sept. 2016: $2.107 million
Jan.-Sept. 2015: $4.663 million

ECONOMIC HEADWINDS
Two national reports provide a snapshot of the economic environment in which ArcBest is operating.

September shipments were down 3.1%, and freight expenditures fell 3.8% compared to the same period in 2015, according to the Cass Freight Index. Cass uses data from $26 billion in annual freight transactions to create the Index. The data comes from a Cass client base of more than 350 large shippers.

The American Trucking Associations (ATA) For-Hire Truck Tonnage Index fell 5.8% in September, following a downwardly revised 5% rise in August. Year-to-date, compared with the same period in 2015, tonnage was up 3% at the end of September.

Donald Broughton, a chief market strategist and senior transportation analyst with Avondale Partners, who provides economic analysis for the Cass Freight Index, said the September numbers were a reminder of “volatility” in the overall supply chain related to persistently high inventory levels. Broughton said the consumer has not reacted to lower energy prices in the way most economists expected. Broughton said the inventory issue has been historic, and will drag on for a few more months.

“Inventories have now contracted from GDP for five consecutive quarters to the tune of ~3% of GDP. This is the longest stretch outside of a recession since 1956-57 and the largest in magnitude since 1995. We expect de-stocking to continue into Q3 in retail, based on the NRF’s (National Retail Federation’s) Port Tracker survey,” he noted.

ATA Chief Economist Bob Costello said the month-to-month swings in the sector make it difficult to see a future path.

“Volatility this year continued again in September with the large drop after a significant increase in August. The changes we’re seeing in typical seasonal trends are making it difficult to discern any real or clear trend in truck tonnage,” Costello noted.

ArcBest shares (NASDAQ: ARCB) closed Wednesday (Nov. 2) at $20.20, up 50 cents. The share price in the past 52 weeks has ranged from a $28.12 high to a $14.85 low.

The company on Tuesday announced a quarterly cash dividend of 8 cents per share payable Nov. 29 to shareholders of record on Nov. 15.