ArcBest Corporation — Q1 2019 Form 10-Q
Business context and reporting period: The filing covers the three months ended March 31, 2019; balance-sheet figures are as of March 31, 2019, compared with December 31, 2018. ArcBest provides freight transportation and logistics services through Asset-Based, ArcBest (asset-light), and FleetNet segments. Figures below are in millions of dollars unless noted. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $711.8 | $700.0; up 1.7% |
| Operating income / margin | $8.6 / 1.2% | $12.7 / 1.8% |
| Net income / diluted EPS | $4.9 / $0.18 | $10.0 / $0.37 |
| Adjusted EBITDA (non-GAAP) | $39.8 | $41.3 |
| Operating cash flow | $(3.4) | $31.8 |
| Cash and short-term investments | $254.6 | $297.0 at Dec. 31, 2018 |
| Long-term debt, including current portion | $276.5 | $291.7 at Dec. 31, 2018 |
| Operating lease liabilities | $72.1 | Recognized following lease-standard adoption |
Current assets were $606.5 million and current liabilities were $431.8 million at quarter-end. Cash and short-term investments declined $42.4 million from year-end. The company had $130.0 million of available capacity under its revolving credit facility and $70.1 million under its receivables securitization program. It reported compliance with financing covenants.
Material changes and operating drivers
- Asset-Based revenue rose 5.0% to $506.1 million. Yield, including fuel surcharges, increased 8.0%, while tonnage per day fell 3.1%; operating income was $13.6 million versus $13.4 million.
- ArcBest segment revenue decreased 4.8% to $173.2 million. Revenue per shipment fell 6.6%, reflecting lower market prices and greater truckload capacity; operating income declined to $1.7 million from $3.2 million.
- FleetNet revenue increased 11.5% to $53.3 million, primarily on higher service-event volume; operating income was approximately $1.5 million, essentially unchanged.
- Consolidated operating expenses increased 2.3%, faster than revenue. Higher wages and benefits, casualty claims, nonunion incentives and healthcare costs, and technology investment weighed on operating results. The “Other and eliminations” operating loss widened to $8.2 million from $5.4 million, mainly due to technology investment.
- Operating cash flow swung to an outflow, primarily reflecting working-capital changes, including payments of accrued incentive and employee-benefit amounts, and lower earnings. Investing cash outflow was $26.0 million; financing cash outflow was $22.5 million.
Outlook, risks, contingencies, and unusual items
- Management expected the “Other and eliminations” loss to be approximately $6 million in Q2 2019 and $25 million for full-year 2019, citing technology development and corporate costs. Estimated 2019 capital expenditures, net of asset sales, were $170–$180 million, including approximately $90 million for revenue equipment.
- April trends were softer: Asset-Based billed revenue per day was up approximately 1% year over year, with yield up approximately 5% and tonnage down approximately 4%. ArcBest segment revenue per day decreased approximately 11%, and net revenue per day decreased approximately 7%.
- The company estimated Q2 2019 nonunion pension settlement expense of approximately $2.0 million pre-tax and potential cash funding of approximately $6.0 million; actual amounts depend on plan assets, benefit elections, and annuity pricing.
- ABF’s labor agreement runs through June 30, 2023. Approximately 82% of Asset-Based employees were covered. The Central States multiemployer pension plan was certified as critical and declining; ABF contributes approximately half of its multiemployer pension contributions. Withdrawal from certain plans could create material liabilities.
- Management cited exposure to economic and freight-market conditions, pricing and capacity competition, labor availability and costs, weather, fuel and surcharge recovery, self-insurance claims, cybersecurity and technology disruption, environmental matters, and pension funding. It said routine legal matters were not expected to have a material adverse effect; environmental reserves were $0.6 million.
- ASC Topic 842 adoption added operating right-of-use assets and lease liabilities; management said the change was noncash and had no significant effect on earnings or cash flows. Q1 2018 comparisons included $2.7 million of provisional tax benefits related to tax reform and a $1.2 million alternative-fuel tax credit, contributing to the year-over-year net-income decline.
- The board declared a quarterly dividend of $0.08 per share. The company repurchased 74,385 shares for $2.7 million in Q1, with $19.6 million remaining under the repurchase authorization. Management stated existing liquidity and borrowing capacity should meet foreseeable needs, while noting that future dividends are discretionary.
Important facts for investors to verify
- Whether weaker freight demand and lower tonnage persist, and whether Asset-Based yield gains can offset volume and cost pressure.
- Whether ArcBest’s lower revenue and April deterioration stabilize as truckload capacity and pricing conditions evolve.
- Actual Q2 pension settlement charges and cash contribution, plus developments in the Central States plan and associated exposure.
- Execution and returns on planned capital spending and technology investment, alongside the forecast $25 million full-year “Other and eliminations” loss.
- Cash conversion and working-capital trends, debt repayments, and available borrowing capacity; assess lease liabilities separately from reported debt.
- Potential impact of cybersecurity, insurance and casualty claims, environmental matters, and other risks discussed in the filing.