Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ArcBest Corp (ARCB, Financial) reported a 28% increase in non-GAAP operating income from continuing operations, reaching $64 million.
- Adjusted earnings per share rose to $1.98, up from $1.54 in the same quarter last year.
- The company's managed transportation solution saw double-digit growth in both demand and revenue.
- Customer retention remains strong, with over 80% of revenues coming from customers with relationships spanning over 10 years.
- ArcBest Corp (ARCB) has made significant efficiency improvements, achieving the best on-time performance in five years.
Negative Points
- Second quarter revenue decreased by 2% year-over-year, totaling $1.1 billion.
- The asset-light business experienced a $9 million decline in non-GAAP operating income due to current truckload market conditions.
- Daily tonnage levels for the third quarter are expected to be below the prior year, partly due to project-related business shifts.
- The asset-light segment reported a non-GAAP operating loss of $2.5 million for the quarter.
- Revenue per shipment in the asset-light segment decreased by 15% due to the soft freight market and growth in managed business with smaller shipment sizes.
Q & A Highlights
Q: If we exclude the project business from last July, would your tonnage be projected as positive in 3Q? Also, what are your customers telling you about the potential recession?
A: The project business from last July contributed to the tonnage decline year-over-year, but it's not the only factor. Some core business also shifted to lower-cost providers. We expect challenges in Q3 tonnage year-over-year but remain focused on profitability and freight selection. Regarding the economy, we see challenges and feel like we're working across the bottom. We have a strong pipeline and are well-positioned to navigate any environment.
Q: Can you talk about core pricing trends into the back half from the 2Q level?
A: We remain disciplined in securing increases on our core business, achieving a 5.1% increase in the second quarter on deferred negotiations. This is the fourth-best increase over the last 20 years for the second quarter. We expect to continue getting good increases throughout the rest of the year.
Q: Why wouldn't the operating ratio improve in 3Q from 2Q given revenue growth and pricing improvements?
A: Revenue levels are generally consistent from Q2 to Q3. We expect the operating ratio to be roughly flat due to moderate cost increases from our union contract and the current freight mix. However, strong operational execution could lead to potential improvement.
Q: How do you think about the industry's ability to maintain core pricing given new terminal openings and soft economic indicators?
A: We focus on sequential trends and see improvements in shipments and tonnage. Industry capacity is down from when Yellow was in the market. Our investments are strategic, and we focus on service improvements to provide long-term customer value. We believe industry capacity will remain down in the long term.
Q: Can you clarify the impact of transactional business on your volumes and pricing?
A: We used transactional tonnage to fill our network and keep employees working during the pandemic and contractual negotiations. After clarity on costs and the Yellow situation, we shifted to more core business, which offers better margins and consistency. This strategy led to improved productivity and financial results.
Q: What percentage of your business is transactional versus core?
A: We don't provide specific numbers as it changes frequently. The business is primarily core, with transactional business used to maintain network consistency and optimize daily based on market conditions.
Q: Can you comment on the mix of spot versus transactional in your asset-light business?
A: In our truckload business, we're roughly 60% contract and 40% spot. We continue to see improvements in productivity and work through a strong pipeline of opportunities.
Q: How do you plan to address the challenges in your asset-light business?
A: The asset-light business is impacted by current market conditions. We focus on improving productivity and efficiency, prioritizing profitable business, and maintaining strong customer relationships. We expect the market to turn and are well-positioned for growth when it does.
Q: Can you quantify the impact of your productivity initiatives?
A: We aim for a 10% to 15% margin improvement. We've made significant progress with an 840 basis point improvement over the last few years. We have numerous projects in the pipeline that will drive further efficiency gains and productivity improvements.
Q: What does the 40% increase in your sales pipeline indicate about the future?
A: The increase in our sales pipeline, with opportunities moving into later stages, suggests positive momentum going into the latter part of the fourth quarter and into 2025. It reflects our ability to outpace negative macro trends and control our growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
