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ArcBest Posts Weak Third-Quarter Results As Down Demand, High Costs Weigh

ArcBest Posts Weak Third-Quarter Results As Down Demand, High Costs Weigh

Trucking and logistics provider ArcBest Corp. (NASDAQ: ARCB) reported late on October 31 lower third-quarter revenue, shipments and tonnage over strong year-earlier numbers. The company's year-over-year weakness continued into October with 7% to 9% year-over-year declines in revenue, shipment and tonnage.

ArcBest which operates an asset-based less-than-truckload (LTL) service as well as a smaller non-asset based unit, posted $787.6 million in third-quarter revenue, compared with $826.2 million in the year-earlier period. Operating income came in at $31.2 million compared to operating income of $56.1 million in the third quarter of 2018. Third quarter net income was $16.3 million, or $0.62 per diluted share, compared to third quarter 2018 net income of $40.8 million, or $1.52 per diluted share. The third quarter 2019 earnings per share (EPS) results were in line with estimates of analysts polled by financial website Barchart.

The LTL operation, which accounts for the bulk of ArcBest's business, posted $565.6 million in revenue, a 4.1% decline on a per day basis. Daily tonnage declined 4.6%, while daily shipments fell 3.9%. The division suffered on the tonnage front as higher-priced LTL tonnage dropped 10% while the lower-rated truckload non-contract, or "spot," tonnage rose by double-digits. Total weight per shipment fell 0.7%, with LTL-rated weight declining 6% per shipment.

The unit posted $31.7 million in operating income, compared with operating income of $51.2 million in the 2018 quarter. Operating ratio, the ratio of revenues to expenses, rose 300 basis points to 94.4%, an unfavorable trend because it meant the unit was spending more of each revenue dollar on expenses. Expenses rose as weak revenue trends failed to offset higher costs in city pickup, dock handling and final shipment delivery, the company said.. The unit also incurred higher equipment-maintenance costs in the quarter, it said.

Revenue for each 100 pounds hauled, a key measure of shipment profitability, rose 1.5%, including the impact of fuel surcharges. Excluding the fuel surcharge, the percentage increase on LTL was in the high single digits. Contract renewal rates ran in the high single-digits in the quarter, executives said.

Like other LTL carriers, ArcBest is feeling the impact of a year-long weakness in demand for industrial freight, the sector's bread and butter. The company also faced difficult comparisons from the 2018 third quarter when the overall U.S. economic picture was more favorable and businesses were looking to pull forward their orders from China ahead of a threatened January 1, 2019 U.S. tariff increase on Chinese imports.

Through its asset-light operation, ArcBest brokers truckload shipments. ArcBest's brokerage revenue and tonnage have declined throughout the year as softening demand and a loosening of truckload capacity have reduced the frequency of overflow truckload shipments that need to be covered by brokers. Truckload shipments comprise about 5% of the overall shipment mix, a level that's unlikely to change much, executives said.

ArcBest's non asset-based unit, which handles expedited transport and brokerage services, reported a $2.2 million drop in revenue to $253.7 million. Operating income fell $7.5 million to $3.6 million, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell to $6.6 million, an $8.3 million drop.

The unit suffered from a decline in shipments and average revenue per shipment associated with lower market demand. In addition, the unit's purchased transportation costs did not decline from last year's more robust demand levels, putting pressure on margins and operating income. 

Judy R. McReynolds, ArcBest's chairman, president and CEO, called the current conditions "difficult" and "challenging."

Managed transportation services were a significant positive contributor to Asset-Light results as the recent trend of solid demand for these value-added logistics services continued, the company said.

At noon ET Nov.1, shares were up $1.08 a share at $29.97 a share.

Image Sourced from Pixabay

Posted-In: ArcBest Freight Freightwaves LogisticsEarnings News Markets General


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