ArcBest Announces Third Quarter 2018 Results

ArcBest^® Announces Third Quarter 2018 Results

 

• Third quarter 2018 revenue of $826.2 million, and net income of $40.8 million, or $1.52 per diluted share.  On a non-GAAP¹ basis, third quarter 2018 net income was $38.6 million, or $1.44 per diluted share, a 151 percent improvement over third quarter 2017.
• Third quarter Asset-Based revenue increase and operating income improvement associated with tonnage growth and greater pricing yields.
• Asset-Light net revenue increase resulting in improved profitability.  

 

FORT SMITH, Arkansas, November 1, 2018 — ArcBest^® (Nasdaq: ARCB), a leading logistics company with creative problem solvers who deliver integrated solutions, today reported third quarter 2018 revenue of $826.2 million compared to third quarter 2017 revenue of $744.3 million.  This represented another record level of quarterly consolidated revenue for ArcBest.  Third quarter 2018 operating income was $56.1 million compared to operating income of $26.7 million in the same quarter last year.  Net income was $40.8 million, or $1.52 per diluted share compared to third quarter 2017 net income of $14.8 million, or $0.56 per diluted share.  

Excluding certain items in both periods, as identified in the attached reconciliation tables, non-GAAP operating income was $54.2 million in third quarter 2018 compared to third quarter 2017 operating income of $27.3 million.  On a non-GAAP basis, net income was $38.6 million, or $1.44 per diluted share, in third quarter 2018 compared to third quarter 2017 net income of $15.4 million, or $0.58 per diluted share.     

“I am proud of our team for producing the third consecutive quarter of very positive results this year at ArcBest as we collaborate across the organization to provide customers the best solutions to their supply chain needs,” said Chairman, President and CEO Judy R. McReynolds. “Our sales, yield and operations teams – supported by significant technology investments we have made over the last several years – are doing an excellent job helping our customers navigate the industry capacity shortage while ensuring that ArcBest receives the appropriate value for our services. Significantly, our asset-based business reported its best third quarter operating ratio since 2006, and we experienced a strong net revenue improvement in our asset-light business.”

 

  

 

 

 

1. U.S. Generally Accepted Accounting Principles

 

 

Asset-Based

Results of Operations

Third Quarter 2018 Versus Third Quarter 2017

• Revenue of $585.3 million compared to $517.4 million, a per-day increase of 12.2 percent.
• Tonnage per day increase of 1.6 percent.
• Shipments per day decrease of 1.0 percent.
• Total billed revenue per hundredweight increased 10.1 percent and was positively impacted by higher fuel surcharges.  Excluding fuel surcharge, the percentage increase on ArcBest’s Asset-Based LTL freight was in the high-single digits.
• Operating income of $50.2 million and an operating ratio of 91.4 percent compared to third quarter 2017 operating income of $23.7 million and an operating ratio of 95.4 percent.   

 

Third quarter results in ArcBest’s Asset-Based business reflect continued strength in account pricing and the benefits of careful cost management in the midst of a steady freight environment. The strong improvement in both revenue per hundredweight and revenue per shipment versus the same period last year was driven by the benefits of pricing initiatives implemented throughout the year and an increase in fuel surcharge.  Increases in average shipment size and average length of haul were additional factors positively impacting revenue per shipment.  The rise in freight tonnage handled throughout the ABF Freight network reversed a trend seen in the first half of the year and contributed to improvement in several key productivity metrics, thus resulting in cost efficiencies and improved operating income.  Though the number of average daily Asset-Based shipments handled in the recent third quarter was slightly below the same period last year, the year-over-year change in this business metric has continually improved throughout each quarter of this year.                     

Asset-Light^‡

Results of Operations

Third Quarter 2018 Versus Third Quarter 2017

• Revenue of $255.9 million compared to $235.3 million, a per-day increase of 7.9 percent.
• Operating income of $11.1 million compared to operating income of $8.8 million. On a non-GAAP basis, operating income of $9.1 million compared to $8.6 million.
• Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $14.9 million compared to Adjusted EBITDA of $12.0 million.

 

Compared to last year’s third quarter, total revenue growth in the Asset-Light ArcBest segment was the result of increased revenue per shipment associated with higher market rates, somewhat offset by a reduction in total shipments handled.  Though net revenue margins continued to be under pressure related to limited availability of competitively priced equipment capacity, the rate of margin compression in the third quarter was less than in the first half of this year.  The resulting increase in total net revenue and in average net revenue per shipment contributed to improved operating income.  Versus the prior year period, the Asset-Light ArcBest segment also experienced significant growth in managed transportation services that positively impacted both revenue and net revenue, and was another factor contributing to higher operating income.  At FleetNet, a strong increase in events contributed to growth in both total revenue and net revenue which, combined with efficient cost management, resulted in improved profitability.

Closing Comments

“Tight capacity and a favorable business environment this year have provided a strong foundation for ArcBest to execute on cross-selling and other growth initiatives,” said McReynolds. “As unemployment reaches historic lows and other indicators we study look favorable, our outlook remains positive and we will monitor the environment closely for any changes. As we close out the year and look forward to 2019, we will continue our focus on growth, profitable account management, cost control and providing a best-in-class customer experience.”

Conference Call

ArcBest will host a conference call with company executives to discuss the 2018 third quarter results. The call will be on Friday, November 2nd at 9:30 a.m. EDT (8:30 a.m. CDT). Interested parties are invited to listen by calling (800) 670-1536. Following the call, a recorded playback will be available through the end of the day on December 15, 2018. To listen to the playback, dial (800) 633-8284 or (402) 977-9140 (for international callers). The conference call ID for the playback is 21897168. The conference call and playback can also be accessed, through December 15, 2018, on ArcBest’s website at arcb.com.

 

Call participants can submit questions this afternoon prior to the conference call by emailing them to ir@arcb.com.  On the call, responses will be provided to as many questions as possible in the time available.

 

About ArcBest

ArcBest^® (Nasdaq: ARCB) is a leading logistics company with creative problem solvers who deliver integrated solutions.  We'll find a way to deliver knowledge, expertise and a can-do attitude with every shipment and supply chain solution, household move or vehicle repair.  At ArcBest, we’re More Than Logistics^SM.  For more information, visit arcb.com.

Forward-Looking Statements

Certain statements and information in this press release concerning results for the three months ended September 30, 2018 may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “foresee,” “intend,” “may,” “plan,” “predict,” “project,” “scheduled,” “should,” “would,” and similar expressions and the negatives of such terms are intended to identify forward-looking statements. These statements are based on management’s beliefs, assumptions, and expectations based on currently available information, are not guarantees of future performance, and involve certain risks and uncertainties (some of which are beyond our control). Although we believe that the expectations reflected in these forward-looking statements are reasonable as and when made, we cannot provide assurance that our expectations will prove to be correct. Actual outcomes and results could materially differ from what is expressed, implied, or forecasted in these statements due to a number of factors, including, but not limited to: a failure of our information systems, including disruptions or failures of services essential to our operations or upon which our information technology platforms rely, data breach, and/or cybersecurity incidents; relationships with employees, including unions, and our ability to attract and retain employees; unfavorable terms of, or the inability to reach agreement on, future collective bargaining agreements or a workforce stoppage by our employees covered under ABF Freight’s collective bargaining agreement; the loss or reduction of business from large customers; the cost, timing, and performance of growth initiatives; competitive initiatives and pricing pressures; general economic conditions and related shifts in market demand that impact the performance and needs of industries we serve and/or limit our customers’ access to adequate financial resources; greater than expected funding requirements for our nonunion defined benefit pension plan; availability and cost of reliable third-party services; our ability to secure independent owner operators and/or operational or regulatory issues related to our use of their services; governmental regulations; environmental laws and regulations, including emissions-control regulations; the cost, integration, and performance of any recent or future acquisitions; not achieving some or all of the expected financial and operating benefits of our corporate restructuring or incurring additional costs or operational inefficiencies as a result of the restructuring; union and nonunion employee wages and benefits, including changes in required contributions to multiemployer plans; litigation or claims asserted against us; the loss of key employees or the inability to execute succession planning strategies; default on covenants of financing arrangements and the availability and terms of future financing arrangements; timing and amount of capital expenditures; self-insurance claims and insurance premium costs; availability of fuel, the effect of volatility in fuel prices and the associated changes in fuel surcharges on securing increases in base freight rates, and the inability to collect fuel surcharges; increased prices for and decreased availability of new revenue equipment, decreases in value of used revenue equipment, and higher costs of equipment-related operating expenses such as maintenance and fuel and related taxes; potential impairment of goodwill and intangible assets; maintaining our intellectual property rights, brand, and corporate reputation; seasonal fluctuations and adverse weather conditions; regulatory, economic, and other risks arising from our international business; antiterrorism and safety measures; and other financial, operational, and legal risks and uncertainties detailed from time to time in ArcBest’s public filings with the Securities and Exchange Commission (“SEC”).

 

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see our filings with SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events, or otherwise.

NOTE

 ‡ - The ArcBest and FleetNet reportable segments, combined, represent Asset-Light operations.

Financial Data and Operating Statistics

The following tables show financial data and operating statistics on ArcBest^® and its reportable segments.

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

		Three Months Ended						Nine Months Ended
		September 30						September 30
		2018			2017			2018			2017
		(Unaudited)
		($ thousands, except share and per share data)
REVENUES		$	826,158		$	744,280		$	2,319,509		$	2,115,736
OPERATING EXPENSES (includes one-time charge)(1)(2)			770,103			717,538			2,247,573			2,073,127
OPERATING INCOME			56,055			26,742			71,936			42,609
OTHER INCOME (COSTS)
Interest and dividend income			1,120			346			2,360			905
Interest and other related financing costs			(2,470)			(1,706)			(6,542)			(4,410)
Other, net(2)			(714)			(1,314)			(4,038)			(3,548)
			(2,064)			(2,674)			(8,220)			(7,053)
INCOME BEFORE INCOME TAXES			53,991			24,068			63,716			35,556
INCOME TAX PROVISION			13,215			9,280			11,753			12,398
NET INCOME		$	40,776		$	14,788		$	51,963		$	23,158
EARNINGS PER COMMON SHARE(3)
Basic		$	1.58		$	0.57		$	2.02		$	0.90
Diluted		$	1.52		$	0.56		$	1.94		$	0.87
AVERAGE COMMON SHARES OUTSTANDING
Basic			25,697,509			25,671,535			25,670,435			25,699,306
Diluted			26,795,659			26,393,359			26,708,259			26,373,382
CASH DIVIDENDS DECLARED PER COMMON SHARE		$	0.08		$	0.08		$	0.24		$	0.24

1. Includes a $37.9 million multiemployer pension fund withdrawal liability charge for the nine months ended September 30, 2018.
2. Effective January 1, 2018, the Company retrospectively adopted an amendment to ASC Topic 715, Compensation – Retirement Benefits, which requires changes to the financial statement presentation of certain components of net periodic benefit cost related to pension and other postretirement benefits accounted for under ASC Topic 715. As a result of adopting this amendment, the service cost component of net periodic benefit cost continues to be included in Operating Expenses, but the other components of net periodic benefit cost, including pension settlement expense, are presented in Other Income (Costs) for the three and nine months ended September 30, 2018 and 2017. The detail of the Company’s net periodic benefit costs will be presented in Note F to the consolidated financial statements included in Part I, Item I of the Company’s third quarter 2018 Quarterly Report on Form 10-Q.
3. ArcBest uses the two-class method for calculating earnings per share. This method requires an allocation of dividends paid and a portion of undistributed net income (but not losses) to unvested restricted stock for calculating per share amounts.

 

 

 

ARCBEST CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		September 30			December 31
		2018			2017
		(Unaudited)			Note
		($ thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	177,436		$	120,772
Short-term investments			75,879			56,401
Accounts receivable, less allowances (2018 - $7,475; 2017 - $7,657)			323,212			279,074
Other accounts receivable, less allowances (2018 - $975; 2017 - $921)			17,992			19,491
Prepaid expenses			21,291			22,183
Prepaid and refundable income taxes			6,726			12,296
Other			9,038			12,132
TOTAL CURRENT ASSETS			631,574			522,349
PROPERTY, PLANT AND EQUIPMENT
Land and structures			338,046			344,224
Revenue equipment			857,846			793,523
Service, office, and other equipment			192,241			179,950
Software			133,816			129,589
Leasehold improvements			9,177			8,888
			1,531,126			1,456,174
Less allowances for depreciation and amortization			904,180			865,010
			626,946			591,164
GOODWILL			108,320			108,320
INTANGIBLE ASSETS, NET			70,075			73,469
DEFERRED INCOME TAXES			5,967			5,965
OTHER LONG-TERM ASSETS			74,800			64,374
		$	1,517,682		$	1,365,641
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	154,484		$	129,099
Income taxes payable			138			324
Accrued expenses			233,076			210,484
Current portion of long-term debt			54,556			61,930
Current portion of pension and postretirement liabilities			12,640			753
TOTAL CURRENT LIABILITIES			454,894			402,590
LONG-TERM DEBT, less current portion			235,970			206,989
PENSION AND POSTRETIREMENT LIABILITIES, less current portion			27,614			39,827
OTHER LONG-TERM LIABILITIES			40,372			15,616
DEFERRED INCOME TAXES			53,741			49,157
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, authorized 70,000,000 shares; issued 2018: 28,547,578 shares; 2017: 28,495,628 shares			285			285
Additional paid-in capital			325,533			319,436
Retained earnings			488,158			438,379
Treasury stock, at cost, 2018: 2,857,460 shares; 2017: 2,851,578 shares			(86,265)			(86,064)
Accumulated other comprehensive loss			(22,620)			(20,574)
TOTAL STOCKHOLDERS’ EQUITY			705,091			651,462
		$	1,517,682		$	1,365,641

 

Note:  The balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

 

ARCBEST CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Nine Months Ended
		September 30
		2018			2017
		Unaudited
		($ thousands)
OPERATING ACTIVITIES
Net income		$	51,963		$	23,158
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization			78,305			73,417
Amortization of intangibles			3,394			3,404
Pension settlement expense			1,603			3,644
Share-based compensation expense			6,185			5,070
Provision for losses on accounts receivable			1,937			705
Deferred income tax provision			3,697			5,846
Gain on sale of property and equipment			(188)			(257)
Gain on sale of subsidiaries			(1,945)			(152)
Changes in operating assets and liabilities:
Receivables			(47,287)			(35,590)
Prepaid expenses			1,013			(37)
Other assets			(4,826)			(5,932)
Income taxes			5,675			5,180
Multiemployer pension fund withdrawal liability(1)			22,744			—
Accounts payable, accrued expenses, and other liabilities			51,309			17,915
NET CASH PROVIDED BY OPERATING ACTIVITIES			173,579			96,371
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net of financings			(39,249)			(44,377)
Proceeds from sale of property and equipment			2,917			3,585
Proceeds from sale of subsidiaries			4,680			1,970
Purchases of short-term investments			(67,121)			(50,274)
Proceeds from sale of short-term investments			47,878			49,980
Capitalization of internally developed software			(7,411)			(7,225)
NET CASH USED IN INVESTING ACTIVITIES			(58,306)			(46,341)
FINANCING ACTIVITIES
Borrowings under accounts receivable securitization program			—			10,000
Payments on long-term debt			(49,967)			(52,262)
Net change in book overdrafts			(1,975)			2,289
Deferred financing costs			(202)			(959)
Payment of common stock dividends			(6,176)			(6,207)
Purchases of treasury stock			(201)			(6,019)
Payments for tax withheld on share-based compensation			(88)			(3,080)
NET CASH USED IN FINANCING ACTIVITIES			(58,609)			(56,238)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH			56,664			(6,208)
Cash and cash equivalents and restricted cash at beginning of period			120,772			115,242
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD		$	177,436		$	109,034
NONCASH INVESTING ACTIVITIES
Equipment financed		$	71,575		$	61,607
Accruals for equipment received		$	438		$	851

1. ABF Freight, Inc. recorded a one-time charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund.

 

		Three Months Ended												Nine Months Ended
		September 30												September 30
		2018						2017						2018						2017
		Unaudited
		($ thousands, except percentages)
REVENUES
Asset-Based		$	585,290					$	517,417					$	1,626,644					$	1,496,310
ArcBest			205,449						195,749						587,369						524,554
FleetNet			50,494						39,568						145,045						116,307
Total Asset-Light			255,943						235,317						732,414						640,861
Other and eliminations			(15,075)						(8,454)						(39,549)						(21,435)
Total consolidated revenues		$	826,158					$	744,280					$	2,319,509					$	2,115,736
OPERATING EXPENSES(1)
Asset-Based
Salaries, wages, and benefits		$	292,082		49.9	%		$	287,270		55.5	%		$	848,611		52.2	%		$	853,554		57.0	%
Fuel, supplies, and expenses			64,133		10.9				57,395		11.1				191,366		11.7				174,326		11.6
Operating taxes and licenses			12,261		2.1				11,712		2.3				35,927		2.2				35,726		2.4
Insurance			9,448		1.6				8,348		1.6				24,055		1.5				23,068		1.5
Communications and utilities			4,308		0.7				4,575		0.9				12,964		0.8				13,260		0.9
Depreciation and amortization			22,200		3.8				20,543		4.0				64,492		4.0				61,777		4.1
Rents and purchased transportation			70,946		12.1				55,381		10.7				180,332		11.1				154,996		10.4
Shared services(2)			58,354		10.0				47,608		9.2				160,786		9.9				137,712		9.2
Multiemployer pension fund withdrawal liability charge(3)			—		—				—		—				37,922		2.3				—		—
Gain on sale of property and equipment			(123)		—				(7)		—				(522)		—				(599)		—
Other			1,531		0.3				757		0.1				3,778		0.2				3,935		0.3
Restructuring costs(4)			—		—				95		—				—		—				268		—
Total Asset-Based			535,140		91.4	%			493,677		95.4	%			1,559,711		95.9	%			1,458,023		97.4	%
ArcBest
Purchased transportation			164,322		80.0	%			155,894		79.6	%			475,614		81.0	%			417,313		79.6	%
Supplies and expenses			3,522		1.7				3,853		2.0				10,290		1.7				11,265		2.1
Depreciation and amortization(5)			3,558		1.7				3,015		1.5				10,563		1.8				9,511		1.8
Shared services(2)			23,453		11.4				22,447		11.5				68,857		11.7				62,691		11.9
Other			2,546		1.2				2,854		1.5				6,973		1.2				8,192		1.6
Restructuring costs(4)			—		—				—		—				152		—				875		0.2
Gain on sale of subsidiaries(6)			(1,945)		(0.9)				(152)		(0.1)				(1,945)		(0.3)				(152)		—
			195,456		95.1	%			187,911		96.0	%			570,504		97.1	%			509,695		97.2	%
FleetNet			49,406		97.8	%			38,646		97.7	%			141,407		97.5	%			113,617		97.7	%
Total Asset-Light			244,862						226,557						711,911						623,312
Other and eliminations(7)			(9,899)						(2,696)						(24,049)						(8,208)
Total consolidated operating expenses		$	770,103		93.2	%		$	717,538		96.4	%		$	2,247,573		96.9	%		$	2,073,127		98.0	%
OPERATING INCOME(1)
Asset-Based		$	50,150					$	23,740						66,933						38,287
ArcBest			9,993						7,838						16,865						14,859
FleetNet			1,088						922						3,638						2,690
Total Asset-Light			11,081						8,760						20,503						17,549
Other and eliminations(7)			(5,176)						(5,758)						(15,500)						(13,227)
Total consolidated operating income		$	56,055					$	26,742					$	71,936					$	42,609

1. As previously discussed in the Financial Data and Operating Statistics to this press release, the components of net periodic benefit cost other than service cost are presented within Other Income (Costs) in the consolidated financial statements for all periods presented and, therefore, excluded from the presentation of operating segment data within this table.
2. Shared services represent costs incurred to support all segments, including sales, pricing, customer service, marketing, capacity sourcing functions, human resources, financial services, information technology, legal, and other company-wide services.
3. ABF Freight, Inc. recorded a one-time charge in second quarter 2018 for the multiemployer pension plan withdrawal liability resulting from the transition agreement it entered into with the New England Teamsters and Trucking Industry Pension Fund.
4. Restructuring charges relate to the realignment of the Company’s organizational structure as announced on November 3, 2016.
5. Depreciation and amortization consists primarily of amortization of intangibles, including customer relationships, and software associated with acquired businesses.
6. Gains recognized in the 2018 and 2017 periods relate to the sale of the ArcBest segment’s military moving businesses in December 2017 and 2016, respectively.
7. “Other” corporate costs include restructuring charges of less than $0.1 million and $0.6 million for the three months ended September 30, 2018 and 2017, respectively, and $0.6 million and $1.6 million for the nine months ended September 30, 2018 and 2017, respectively. (See Segment Operating Income Reconciliations of GAAP to Non-GAAP Financial Measures table.) “Other” corporate costs also include certain unallocated shared service costs which are not attributable to any segment and additional investments to provide an improved platform for revenue growth and for offering ArcBest services across multiple operating segments.