ArcBest Corporation (Nasdaq: ARCB) — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. ArcBest provides freight transportation and logistics services through Asset-Based, ArcBest (asset-light), and FleetNet segments. The filing is unaudited; amounts below are in millions except per-share data.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $771.5 | $793.4 | $1,483.3 | $1,493.4 |
| Operating income | $35.2 | $3.2 | $43.8 | $15.9 |
| Net income | $24.4 | $1.2 | $29.3 | $11.2 |
| Diluted EPS | $0.92 | $0.05 | $1.10 | $0.42 |
| Operating cash flow | Not stated by quarter | Not stated by quarter | $80.5 | $119.6 |
- Q2 revenue declined 2.8%; six-month revenue declined 0.7%. Q2 operating margin was approximately 4.6% versus 0.4% reported in Q2 2018. However, the 2018 quarter included a $37.9 million one-time multiemployer pension withdrawal charge. Excluding that charge, Q2 2018 operating income was approximately $41.1 million, above 2019’s $35.2 million.
- Q2 Asset-Based revenue was $559.6 million, ArcBest revenue $181.2 million, and FleetNet revenue $51.7 million. Asset-Based operating income was $36.2 million; ArcBest’s was $2.1 million; FleetNet’s was $1.0 million.
- Q2 Asset-Based yield (revenue per hundredweight, including fuel surcharges) rose 4.1%, but tonnage per day declined 3.4%. ArcBest revenue declined 9.4%, reflecting lower revenue per shipment and fewer shipments; FleetNet revenue increased 10.5% on higher service-event volume.
- Six-month operating cash flow fell $39.1 million year over year, primarily due to working-capital outflows, lower income, and changes in noncash items and taxes. Investing activities used $53.6 million; financing activities used $35.3 million. Cash and cash equivalents ended at $181.7 million.
Balance sheet, debt, and liquidity
- At June 30, 2019, cash, cash equivalents, and short-term investments totaled $299.4 million. Total debt was $282.2 million, including $70 million under the revolving credit facility, $40 million under receivables securitization, and $172.1 million of notes payable. Debt was down from $291.7 million at year-end 2018.
- Available borrowing capacity was $130.0 million under the revolving facility and $70.1 million under the securitization program. The company reported compliance with applicable covenants and said available resources should meet foreseeable liquidity needs.
- Adoption of lease accounting added $68.8 million of operating right-of-use assets and $72.3 million of operating lease liabilities at June 30. The company stated the adoption had no significant impact on results or cash flows.
- Six-month capital expenditures, net of asset-sale proceeds, were $38.1 million; a further $11.0 million of equipment was financed. The company repurchased $5.2 million of stock and paid $4.1 million in dividends.
Changes, outlook, and notable items
- Reported profit improved sharply against the prior-year period because Q2 2018 included the $37.9 million pension withdrawal charge. On a basis excluding that charge, management said consolidated operating results declined, reflecting lower revenues, business mix, and expenses.
- Asset-Based revenue benefited from higher pricing, including tariff increases and contract renewals, but weaker tonnage and lower weight per shipment pressured results. Management cited softer economic conditions, more truckload capacity, labor-cost increases, and weather-related effects earlier in 2019.
- ArcBest’s asset-light business faced lower market prices and more available truckload capacity. Management expected continued investment in owner-operator and contract-carrier capacity. FleetNet revenue grew, while operating margins were affected by lower revenue per maintenance event and higher service costs.
- Management estimated 2019 net capital expenditures of $170 million to $180 million, including about $90 million for revenue equipment; depreciation and amortization, excluding intangible amortization, was estimated at $110 million to $115 million. The expected full-year tax rate was approximately 26% to 27%.
- Management expected “Other and eliminations” losses of approximately $5 million in Q3 and $25 million for full-year 2019, reflecting technology investment and shared-service costs. The nonunion pension plan’s settlement was expected to create about $2 million of second-half 2019 pretax expense and an estimated $7 million cash contribution; actual amounts remained subject to actuarial updates.
- July operating indicators were weaker: Asset-Based billed revenue per day fell about 1.5% year over year, while ArcBest segment revenue per day fell about 4.5%. Management attributed pressure chiefly to truckload capacity and lower pricing.
- Key risks include economic and freight-market weakness, pricing and fuel-surcharge recovery, labor availability and union costs, multiemployer pension exposure, cybersecurity and systems disruptions, self-insurance claims, and environmental or legal contingencies. The Central States Pension Plan was reported in critical and declining status; ABF contributes approximately half of its multiemployer pension contributions to that plan. Routine legal matters were not expected to materially affect results; the environmental reserve was $0.6 million.
Most important facts for investors to verify
- Whether revenue, shipment volume, yield, and pricing trends—particularly the July declines and Asset-Based tonnage weakness—persist.
- Underlying profitability versus reported comparisons, adjusting for the $37.9 million 2018 pension charge and considering current labor, technology, and capacity costs.
- Cash-flow conversion and working-capital trends, alongside the planned capital-spending range and equipment financing.
- Actual pension-plan settlement costs and funding, and the financial condition of the multiemployer plans, especially Central States.
- Progress on asset-light margins, technology and capacity investments, and the company’s stated tax and “Other and eliminations” expectations.
- Liquidity and covenant headroom, including borrowing availability and the effects of LIBOR replacement on financing costs.