ArcBest Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 26, 2021. ArcBest provides less-than-truckload freight and asset-light logistics services, plus commercial vehicle maintenance through FleetNet. Its reportable segments are Asset-Based, ArcBest, and FleetNet.
Financial results and liquidity
- Revenue: $2.940 billion, down 1.6% from $2.988 billion in 2019. COVID-19-related demand declines were concentrated in the second quarter; revenue rose 13.8% year over year in the fourth quarter.
- Profit: Operating income was $98.3 million versus $63.8 million; net income was $71.1 million versus $40.0 million. Diluted EPS was $2.69 versus $1.51. The 2019 comparison included a $26.5 million pretax noncash impairment charge ($19.8 million after tax).
- Cash flow: Operating cash flow was $206.0 million, up from $170.4 million. Net capital expenditures were $29.9 million; total net capital expenditures including equipment financing were $91.7 million.
- Margins and segments: Asset-Based operating income was $98.9 million, with a 95.3% operating ratio versus 95.2% in 2019. ArcBest segment revenue increased 5.5% to $779.1 million and operating income was $9.7 million, compared with a $20.2 million loss in 2019. FleetNet revenue fell 3.2% to $205.0 million and operating income declined to $3.4 million from $4.8 million.
- Cash and debt: Cash, cash equivalents, and short-term investments totaled $369.4 million, up from $318.5 million. Total debt was $284.2 million, including $70.0 million on the revolving credit facility; the company reported an $85.1 million net cash position versus $5.0 million net debt at year-end 2019. Available borrowing capacity was $180.0 million under the credit facility and $113.3 million under the receivables program.
- Shareholder returns: The company declared $0.32 per share in dividends for 2020 and repurchased 252,299 shares for $6.6 million. The board declared a further $0.08 quarterly dividend in January 2021.
Material changes and unusual items
- The pandemic sharply reduced shipments and tonnage in the second quarter. Business levels improved in the second half, with fourth-quarter revenue increasing year over year.
- Asset-Based daily tonnage declined 0.4%; billed revenue per hundredweight, including fuel surcharges, declined 2.4%. Lower fuel costs and labor expense helped offset weaker revenue, while purchased transportation use increased as demand returned unevenly.
- Asset-Light revenue increased 3.6% overall. ArcBest benefited from tighter truckload capacity and higher revenue per shipment, while FleetNet was affected by lower service-event volumes.
- ArcBest incurred $22.6 million in pretax costs for its ABF freight-handling technology pilot in 2020, versus $15.7 million in 2019. The pilot remained limited in scope, with no assurance it will succeed or expand.
- Management reduced spending and staffing in response to the pandemic, temporarily cut nonunion compensation, and later reversed several reductions. Fourth-quarter discretionary payments related to prior wage reductions totaled approximately $11 million.
- In March 2020, ArcBest drew $180 million on its revolver and $45 million under its receivables program as a precaution, then repaid the borrowings during the third quarter.
Outlook, risks, and contingencies
- Through late February 2021, Asset-Based billed revenue was up approximately 7% per day year over year, primarily from yield improvement; ArcBest segment revenue per day was up approximately 50%, reflecting higher shipments and revenue per shipment. These are preliminary quarter-to-date comparisons, not full-year guidance.
- Management estimated 2021 net capital expenditures, including financed amounts, at $150–$160 million, including approximately $100 million for revenue equipment. It expected depreciation and amortization of fixed assets, excluding intangible amortization, of $115–$120 million.
- Management cited ongoing uncertainty from COVID-19, economic conditions, fuel prices and surcharge recovery, competition and pricing, labor availability and costs, and the ability to secure third-party carrier capacity. Fixed costs may limit the ability to adjust expenses to business levels.
- Multiemployer pension exposure is significant: approximately 56% of 2020 pension contributions went to plans in critical-and-declining status. The Central States Pension Plan, which received about half of ArcBest’s pension contributions, was projected to become insolvent within five years absent legislative action. Future contribution requirements remain uncertain.
- The company reported $97.6 million of workers’ compensation and third-party casualty reserves. The auditor identified these reserves and impairment analysis of goodwill and indefinite-lived intangibles as critical audit matters. Goodwill and intangibles totaled $143.3 million; the domestic freight reporting unit’s estimated fair value exceeded carrying value by less than 5% in the 2020 test.
- Routine legal matters were not expected to have a material adverse effect. ArcBest was negotiating an EPA Clean Water Act settlement that management did not expect to be material. A state sales-and-use-tax assessment was being appealed; management did not expect a material impact, though additional tax could be owed if the state prevails.
- The 2020 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Whether the post-pandemic revenue recovery and early-2021 pricing and shipment trends persisted, and how they translated into operating margins.
- Whether the ABF technology pilot delivers measurable safety, service, productivity, and financial benefits relative to its continuing costs.
- How multiemployer pension-plan funding, potential federal relief, and negotiations before the labor agreement expires in June 2023 affect future costs and liabilities.
- Whether ArcBest can manage purchased transportation costs, fuel-surcharge recovery, labor costs, and planned capital spending without weakening liquidity or returns.
- Whether goodwill and intangible valuations remain supportable if economic recovery, cash flows, or assumptions deteriorate.