ABF Freight poised to benefit from a Yellow bankruptcy

by Michael Tilley ([email protected]) 9,558 views 

Fort Smith-based ArcBest and its subsidiary ABF Freight have a “meaningful” chance of turning the failure of Yellow into bottom-line green, according to investor notes from Stephens Inc. issued Monday (July 31).

Although Nashville-based Yellow had not filed Monday for bankruptcy or announced an intent to seek bankruptcy, several sources, including the International Brotherhood of Teamsters, said they had received noticed from Yellow that it was ceasing operations. Yellow, one of the nation’s largest less-than-truckload carriers, had more than 30,000 employees, with around 22,000 of those being Teamsters’ members.

Yellow has posted four consecutive years of net income losses, with the combined loss totaling more than $325 million. The net income loss in the first quarter of 2023 was $53.6 million.

Stephens Inc. Analyst Jack Atkins and Associate Analyst Grant Smith wrote in a research brief for ArcBest that the shipping and logistics company “is well positioned from a capacity and operational standpoint to capitalize on the opportunity” from a Yellow bankruptcy.

“With net cash on the balance sheet and visibility around its labor costs for the next 5 years, ARCB (ArcBest) should be well positioned both to capitalize on the current market disruption and benefit from improved industry demand and further pricing power once underlying freight flows reaccelerate,” the analysts noted.

Atkins and Smith said the key for ABF Freight to see gains from a Yellow bankruptcy is to manage the disruption without negatively impacting its core customer service.

“(The) key will be for ARCB to continue to deliver high levels of service to customers through this period of disruption which we think will allow for improved freight mix and yields. Both of these (in our view) are more meaningful and material to the bottom line than market share gains,” according to Atkins and Smith.

in their note about the reported Yellow bankruptcy, Atkins and Smith said ABF and other LTL carriers will have more pricing power.

“Yellow’s closure, at the bottom of the freight cycle, happens at a highly favorable time for the remaining LTL carriers. In recent weeks our sense is that pricing leverage (which had pivoted to shippers over the past few months) has quickly shifted back to the LTL carriers,” they wrote.

ArcBest officers were asked Friday (July 28) during the second quarter conference call with analysts about industry changes resulting from a Yellow bankruptcy.

Steven Leonard, ArcBest chief commercial officer, said they are not yet seeing a “drastic change in demand” in recent weeks as Yellow began reducing capacity in the move to bankruptcy. He said ArcBest’s logistics operations will be able to adjust and move on new demand that makes sense.

“So we’re in a great position there and we’re seeing that play out. We’ve had some good examples where customers are coming to us looking for capacity. We’re able to optimize that business use (in) all of our relationships and that’s really playing out well for our customers,” Leonard said on the call.

In response to another question about responding to increased demand, ArcBest Chair, President and CEO Judy McReynolds said ArcBest has levers to use if meeting new demand is financially the right move.

“We could flex up; we could not trade our older equipment and add a third to the fleet. I mean, we have all those kinds of mechanisms available to us, again, for good business and certainly if our opportunities are there for equipment, we were hearing from drivers and other employees,” she said. “So, we know we’re going to have an opportunity at resources. So I think we got to just manage through all of that, look at the quality of the business and make a decision. But those variable levers I mentioned, they’re pretty easy to pull if you feel like you’re in a good place and that that allows you to grow beyond what I was suggesting.”

More demand and better pricing will be welcome news for ArcBest which has struggled to maintain record financial numbers posted in 2022. ArcBest on July 28 posted second quarter net income of $40.443 million, down 60.5% compared with $102.461 million in the same quarter of 2022. Total revenue in the quarter was $1.103 billion, down 16.5% compared with the same quarter in 2022 and below the consensus estimate of $1.11 billion.

Net income in the first half of the fiscal year totaled $111.726 million, below the $172.03 million in the same period of 2022. Revenue in the first six months was $2.209 billion, also below the $2.589 billion compared with record levels set in the same period of 2022.

ArcBest shares (NASDAQ: ARCB) closed Monday at $116.32, down $3.09. The share price in the past 52 weeks has ranged between $122.86 and $68.