ArcBest first quarter revenue up 7.5%, beats estimates on income and revenue

It was a better than expected first quarter for Fort Smith-based ArcBest, which posted net income of $9.954 million, a wide swing from the first quarter 2017 loss of $7.407 million. The adjusted earnings per share of 29 cents beat the consensus estimate of a 7-cent per share loss.

ArcBest, the parent company of less-than-truckload carrier ABF Freight, posted first quarter revenue of $700.001 million, up 7.5% compared with the $651.088 million in the first quarter of 2017. Revenue also beat the consensus estimate of $691.18 million.

The earnings report was posted Thursday (May 10) after the markets closed. ArcBest shares (NASDAQ: ARCB) closed Thursday at $36.95, up 40 cents. During the past 52 weeks the share price has ranged between $16.95 and $39.70.

Judy McReynolds, board chairman, president and CEO, said a “favorable” economy and more demand than supply in the shipping and logistics industry helped boost quarterly financials.

“As expected, tighter capacity in the first quarter resulted from the new Electronic Logging Mandate and other factors, and general economic trends were favorable,” McReynolds said in the earnings statement. “We expect these trends to continue in 2018. These positive developments, combined with ArcBest’s ability to offer full supply chain solutions, create a backdrop for us to push forward with many initiatives to continue improving our customer experience.”

The positive first quarter continues the momentum of 2017. Fourth quarter and full-year net income was up 53% and 46.3%, respectively, for ArcBest, and fourth quarter earnings per share of 42 cents beat the consensus estimate of 36 cents. Full year net income totaled $35.57 million, also better than the $24.304 million in 2016.

TRUCKING, LOGISTICS PERFORMANCE
The company said an ability to raise rates and an “emphasis on improving account yield” – often through dropping low- or no-margin business – helped ABF Freight reach an operating income of $13.4 million. The segment posted an $8.3 million loss in the same quarter of 2017.

ABF had revenue of $482.1 million, better than the $464.4 million in the same quarter of 2017. As an indicator of improved pricing, the company was able to boost revenue even with a 3.7% dip in tonnage per day and a 9.4% decline in shipments per day. Billed revenue per hundredweight rose 8.9% with higher fuel surcharges also credited for the revenue rise.

The company’s asset-light divisions – Logistics and FleetNet – posted revenue of $229.7 million, up compared with the $193.1 million in the same quarter of 2017. Operating income was $4.7 million, more than double the $2.1 million in the 2017 quarter.

“The increase in ArcBest’s Asset-Light first quarter revenue was the result of solid revenue per shipment growth associated with tight industry supply and strong customer demand. The increase in Asset-Light revenue occurred despite reductions in daily shipments,” the company noted in the earnings report.

The company also posted a higher available cash comparison during the quarter. Cash and short-term investments totaled $179.321 million at the end of the quarter, just above the $177.173 million at the end of the 2017 first quarter.

NEW LABOR DEAL
ArcBest may need the cash and positive first quarter if the labor contract assessment by one equity analyst proves true.

The company and the International Brotherhood of Teamsters recently reached an agreement on a new five-year labor contract. Labor leaders approved the deal on April 13, and ballots were mailed to members on April 19. Votes were due May 8 and will be counted May 10, according to the union. If approved, the contract would run to June 30, 2023.

An April 13 investor note from Little Rock-based Stephens Inc. concludes the agreement favors the Teamsters “more than what we previously expected.” As a result, Stephens analyst Brad Delco and associate Scott Schoenhaus lowered ArcBest’s share price (NASDAQ: ARCB) target from $37 to $31.

Following are key points of the contract according to Stephens and Teamsters information.
• Drivers will see a 30 cent per hour wage increase in 2018 (effective July), 35 cents per hour in 2019, 40 cents in 2020, 45 cents in 2021 and 50 cents in 2022.
• Dock workers will be paid $16.25 per hour in 2018, $16.50 in 2019, $16.75 in 2020, $17 in 2021 and $17.25 in 2022.
• Full-time employees will receive a one time $1,000 bonus (pre tax), and “casual” employees who have worked at least 300 hours between Sept. 1, 2017 and March 30, 2018 will receive a $500 bonus.
• Pension contributions and health care plans will be maintained under provisions set in the previous contract.
• Restoration of six weeks vacation based on eligibility and years of service.
• Adds protections to union members from use of purchased transportation (outsourcing).
• Contains additional contractual benefits in areas of equipment standards and family and medical leave policies.

“Said another way, we don’t believe terms of this tentative agreement will help (ArcBest) move its cost structure inline with its competitors and will likely keep ABF Freight in a market share losing position for the life of this contract,” Delco and Schoenhaus wrote.

ArcBest noted in the first quarter report that company officials “were pleased that a tentative contract agreement between ABF and the International Brotherhood of Teamsters was reached at the end of the first quarter, allowing our employees to continue focusing on exceeding customer needs.”