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ArcBest blows past Q1 expectations; margins to improve further

Transportation and logistics provider ArcBest is “firing on all cylinders” as CEO Judy McReynolds put it on a call with analysts discussing first-quarter results Friday.

Before the market opened, ArcBest (NASDAQ: ARCB) reported adjusted earnings per share of $3.08, significantly higher than the $2.13 consensus estimate reported by Seeking Alpha. The result did exclude several items, including costs incurred from a technology pilot program as well as acquisition-related expenses from the MoLo Solutions transaction.

Consolidated revenue surged 61% year-over-year to $1.34 billion. Strong pricing trends and steady demand in its asset-based unit, which includes less-than-truckload, as well as the aforementioned truck brokerage acquisition drove the increase.

“Customers are still definitely talking to us about meeting their customers’ demand. … They’re still telling us of a strong demand [environment] and really looking ahead to meeting that demand,” Dennis Anderson, chief customer officer, said on the call.  

Asset-based revenue increased 27% year-over-year to $705 million. Revenue per hundredweight, or yield, increased 21%. Tonnage per day was 4% higher.

The segment reported an 87.7% adjusted operating ratio, which was 570 bps better year-over-year. The margin performance in the quarter bucked normal seasonality from the fourth to the first quarter by roughly 820 bps. Seasonal demand changes from first to second quarter each year usually drive 400 bps of sequential improvement.

Higher yields are more than offsetting cost inflation, driving margins higher. The wage and benefits expense line improved 690 bps even as the company onboarded 600 employees in the period. Less-than-truckload yields excluding fuel increased by a double-digit percentage in the first quarter, and rates on contract renewals and deferred pricing agreements logged a high for any first quarter, up 9% year-over-year.

“We price for value and that price exceeds inflation,” CFO David Cobb said. “We’re investing in both facilities and technologies, our people across the board. I think the momentum is good and the opportunity for margin improvement is also there.”

Through the bulk of April, asset-based revenue per day is up 23% year-over-year largely due to a 21% increase in yields.

Table: ArcBest’s key performance indicators

ArcBest’s expedited business, which normally rolls over first in a downturn, continues to see a “strong environment,” said Danny Loe, head of asset-light and chief yield officer. Other than some disruption in the automotive supply chain, there haven’t been any changes in demand.

Asset-light revenue more than doubled to $674 million. The result included the November acquisition of MoLo along with improved demand and higher rates. The division’s OR improved 40 bps to 95.9%.

Revenue per day in the asset-light segment is up 124% year-over-year in April.

“There’s definitely been a softening in the spot truckload market,” Loe said. However, having multiple freight solutions allows ArcBest to grow through the cycle.

“We know that we have significant market opportunity for us within our customer base. To us, the cycle does matter but it doesn’t matter as much because we feel like we can grow through any cycle with the opportunities in play in front of us.”

ArcBest ended the quarter with $158 million in net debt (0.3x net debt-to-earnings before interest, taxes, depreciation and amortization). The 2022 net capital expenditures guidance range was unchanged at $270 million to $290 million. ArcBest has budgeted $160 million in net capex for equipment purchases and $45 million to $55 million in real estate projects.

The infrastructure and capacity additions will support what is expected to be a mid-single-digit run rate in shipment growth by the end of the year. The company is also trying to decrease dependency on third-party capacity, which will lower purchased transportation and equipment rental expenses.

ArcBest announced Thursday that strong cash flow generation prompted an increase in its share repurchase authorization to $75 million. It also raised the quarterly dividend 50% to 12 cents per share.

Click for more FreightWaves articles by Todd Maiden.

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The FREIGHTWAVES TOP 500 For-Hire Carriers list includes Schneider (No. 7), ArcBest (No. 26) and Forward Air (No. 37).