Financial results across the less-than-truckload industry remain constrained as the industrial economy enters the third year of a downturn. ArcBest has been working to improve profitability by revamping its freight mix and focusing on efficiency and cost-cutting initiatives, but at some point, it needs more volume to bear fruit.
The Fort Smith, Arkansas-based transportation and logistics provider reported fourth-quarter adjusted earnings per share of $1.33 on Friday, 28 cents better than the consensus estimate but $1.14 lower year over year.
The adjusted result excluded 9 cents net in one-offs like acquisition-related expenses, costs from technology pilot programs, equipment write-downs, and a lower-than-expected earnout at truck broker MoLo, which was acquired in 2021.
Industrial sluggishness weighs on shipments, tonnage
ArcBest’s (NASDAQ: ARCB) asset-based unit, which includes results from less-than-truckload subsidiary ABF Freight, reported revenue of $656 million, a 7.6% y/y decline. Tonnage per day was down 7.3%, slightly offset by a 0.6% increase in revenue per hundredweight, or yield.
Weight per shipment was down 6.3%, which drove the increase in the yield metric. Netting out the change in weight resulted in a roughly 6% decline in yield. However, without the impact of lower fuel surcharges, yield was up by a mid-single-digit percentage.
Contractual price increases averaged 4.5% in the quarter, slightly lower than in recent periods. The average increase for full-year 2024 was 4.9%, a top-five result over the past 20 years. Management said the market continues to price rationally and that it expects yield (inclusive of fuel) to remain positive y/y going forward.
SONAR: Longhaul LTL Monthly Rate per Ton Mile, Class 50-65 Index. Less-than-truckload monthly indices are based on the median rate per ton mile for four National Motor Freight Classification groupings and five different mileage bands. To learn more about SONAR, click here.
SONAR: Shorthaul LTL Monthly Rate per Ton Mile, Class 50-65 Index. To learn more about SONAR, click here.
Higher interest rates and a soft industrial backdrop have negatively impacted demand for heavier shipments. Fewer movements of large household goods and some market share loss to the truckload industry (mostly shipment sizes from 7,500 to 20,000 pounds) have been headwinds to LTL carrier revenue and margins. The fourth quarter of 2024 also had a tough comparison to the prior-year period, which benefited from a temporary revenue bump due to a cyberattack at a competitor.
The declines tapered on a sequential comparison in the fourth quarter, but January 2025 tonnage per day was down 11% y/y on a negative-18% comp in January 2024 (down nearly 30% on a two-year-stacked comp). Yield was up 8% y/y in January but flat when accounting for an 8% decline in weight per shipment. The result was a 4% y/y decline in revenue during the month.
ArcBest said winter storms in January resulted in its highest rate of terminal closures since 2014.
The tonnage comps are easier in the first half of the year, but the carrier needs help from the industrial complex.
Table: ArcBest’s key performance indicators
The asset-based segment recorded a 92% adjusted operating ratio (operating expenses expressed as a percentage of revenue), which was 430 basis points worse y/y but 100 bps better than management’s sequential guidance.
Salaries, wages and benefits expenses increased 230 bps y/y as a percentage of revenue. The bulk of the increase was tied to a 2.7% annual wages and benefits increase (implemented July 1) for union employees. Insurance expenses were up 150 bps y/y.
A full-year adjusted OR of 91.2% (80 bps worse y/y) triggered a 1% annual bonus for union workers. Union pension costs account for approximately 600 bps of the unit’s OR composition.
The company has realized $12 million in annual cost savings from training and compliance initiatives and will be using AI and machine learning tools to further improve employee productivity across the network. It’s also further implementing demand forecasting and route optimization initiatives.
The unit normally sees a 4% sequential decline in revenue from the fourth to the seasonally weakest first quarter every year, implying a 6% y/y decline. Management is hopeful to outperform that change rate even with the weather overhang. The segment is expected to see 350 to 400 bps of sequential OR deterioration, which is the norm. That implies a roughly 95.8% OR, 380 bps worse y/y.
The asset-light unit, which includes truck brokerage, reported a $5.9 million operating loss in the quarter. This was the sixth straight operating loss for the unit.
Revenue of $375 million was 9% lower y/y as loads dipped 2% and revenue per load fell 7%. The decline was partly blamed on weather and an effort to scrub less profitable loads from the brokerage network. A mix shift favoring managed transportation has been a drag on revenue per load because of the smaller shipment sizes.
Asset-light revenue per day was down 6% y/y in January as shipments and revenue per shipment were both off 3%. The unit is expected to record an operating loss of $4 million to $6 million in the first quarter.
ArcBest forecast 2025 net capex of $225 million to $275 million with $130 million to $140 million slated for equipment and $60 million to $80 million for real estate projects.
Shares of ARCB were down 0.4% at 1:34 p.m. EST on Friday compared to the S&P 500, which was up 0.1%.
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