Investor note positive on ArcBest, shares rise more than 6%

Transportation industry analysts with Stephens Inc. remain positive about Fort Smith-based ArcBest even as the company reported lower than expected third quarter earnings, and even with reports of a tough economic environment from other trucking and logistics companies.

ArcBest, a transportation holding company with ABF Freight as its largest subsidiary, reported Oct. 31 that earnings per share during the third quarter was 62 cents, below the $1.52 in the same quarter of 2018, and well below the consensus estimate of 87 cents per share. Net income in the quarter was $16.27 million, well below the $40.776 million in the 2018 quarter. Revenue during the quarter was $787.563 million, below the $826.158 million in the same period of 2018. The revenue was below the consensus estimate of $797.1 million.

Jack Atkins and Scott Schoenhaus, analysts with Little Rock-based Stephens, said ArcBest was able to deliver “better-than-feared bottom-line results” in the third quarter. Their investor note published Monday (Nov. 4) said “bottom-line results in the Company’s asset-light segment beat our forecast and showcased stable operating margins (albeit slight at only 1.4%).”

They also raised their annual share target price from $32 to $34, and raised the full-year earnings per share from $2 to $2.30. The consensus estimate is $2.53. The Stephens’ analysts also rolled out their fiscal year 2021 earnings per share at $3.40. (Stephens Inc. holds company shares and provides investment banking services for ArcBest.)

Company shares (NASDAQ: ARCB) closed Monday at $31.37, up $1.83, or 6.19%. During the past 52 weeks the share price has ranged between $42.38 and $24.69.

Total revenue at ABF during the first nine months of 2019 is $1.631 billion, just ahead of the $1.626 billion in the same period of 2018. Operating income for the first nine months in the ABF segment is $81.575 million, up from the $66.933 million in the same period of 2018.

On the downside, the investor note voiced concern that a “weaker industrial backdrop” will make it difficult for ArcBest to respond with cost-cutting measures because of its “significant operating leverage” related to high fixed costs in the asset-heavy trucking segment. The Stephens’ note also pointed to expected declines of less-than-truckload tonnage into the fourth quarter as another headwind for the fiscal year.

ArcBest President, Chair, and CEO Judy McReynolds said in a Nov. 1 conference call with analysts that economic conditions are less than ideal, but sees opportunity in the mild downturn.

“In this environment, we’re seeing our customer’s ship smaller sizes and this niche change is a good portion of LTL tonnage decline that we’re experiencing. Our customers tell us that they impacted by higher inventory levels, as well as tariffs and other uncertainties that have arisen in their supply chains,” McReynolds said according to the Seeking Alpha transcript. “So, during these periods of economic slowdown, when our customers are challenged by lower sales and increasing costs, they look to us even more to help them with their supply chains and to maintain an efficient flow of goods with costs as low as possible.”

Atkins and Schoenhaus also issued an investor note on YRC Worldwide, a less-than-truckload competitor to ArcBest. They wrote that, for YRC, “tonnage remain challenged as the industrial economy continued to contract (September PMI 47.9) and volumes in the Midwest stagnated during the quarter. The Company noted that tonnage hasn’t yet shown signs of recovery, with October tonnage down 4.1% in Freight and -6.2% in Regional.”