ArcBest Corporation (formerly Arkansas Best Corporation) — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; unaudited. Unless otherwise noted, amounts are U.S. dollars. ArcBest announced its name change and began trading under ticker ARCB on May 1, 2014.
Business context and results
ArcBest provides freight transportation and logistics services through five reporting segments. ABF Freight, its asset-based less-than-truckload carrier, generated about 73% of segment revenues before other revenues and eliminations. The other segments are Panther, FleetNet, ABF Logistics and ABF Moving.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Operating revenue | $577.9 million | $520.7 million |
| Operating loss | $8.7 million | $23.4 million |
| Net loss | $5.2 million | $13.4 million |
| Diluted loss per share | $0.20 | $0.52 |
| Operating cash flow | $6.2 million provided | $0.2 million used |
| EBITDA (company-reported non-GAAP measure) | $18.1 million | $5.3 million |
Revenue rose 11.0%, with all segments reporting growth. The combined non-asset-based segments grew 30.9% and accounted for about 27% of revenues before eliminations, versus 23% a year earlier. ABF Freight revenue increased 5.3%; daily tonnage rose 4.6% and billed revenue per hundredweight, including fuel surcharges, rose 0.7%. ABF Freight’s operating loss narrowed to $12.2 million from $22.5 million, and its operating ratio improved to 102.8% from 105.5%.
- Segment results: Panther recorded $3.4 million operating income versus a $0.9 million loss; FleetNet income increased to $1.4 million from $0.7 million; ABF Logistics income was about $0.5 million in both periods; ABF Moving’s loss widened to $0.8 million from $0.2 million.
- Margins and costs: ABF Freight salaries, wages and benefits fell to 60.9% of revenue from 65.6%, reflecting the new labor agreement and lower nonunion pension expense. Fuel, supplies and expenses, and rents and purchased transportation, increased as percentages of revenue.
Financial position, cash flow and liquidity
At March 31, 2014, cash and cash equivalents were $95.7 million, short-term investments $36.0 million and restricted cash $1.9 million. Unrestricted cash and investments totaled $131.7 million, down $9.6 million from year-end. Total assets were $1.02 billion; stockholders’ equity was $514.2 million.
Total debt, including current maturities and capital leases, was $105.1 million, down from $112.8 million at December 31, 2013. Current debt was $30.7 million and long-term debt $74.4 million. The company repaid $7.8 million of long-term debt during the quarter. It reported compliance with debt covenants and no borrowings under its $75 million receivables securitization facility; after $20.3 million of standby letters of credit, $54.7 million remained available under that facility.
Investing activities used $9.8 million and financing activities used $6.0 million. Cash declined by $9.6 million to $95.7 million. The company said available cash, operating cash flow and borrowing capacity should meet liquidity needs for the foreseeable future. It paid $0.8 million in dividends in the quarter and declared a further $0.03 per share dividend in April.
Material changes, outlook and risks
- Severe winter weather disrupted ABF Freight operations, reduced shipments and raised expenses; management estimated a $10.5 million adverse first-quarter impact. Weather also supported demand at Panther and FleetNet.
- A nonunion pension settlement charge of $3.7 million pre-tax ($2.3 million after tax, or $0.09 per share) was recorded. Management expected additional settlement charges of $1 million to $2 million in each of Q2, Q3 and Q4 2014, depending on distributions, asset returns and discount rates.
- The ABF National Master Freight Agreement runs through March 31, 2018. It produced an estimated initial 4% reduction in the combined contractual wage and benefit rate; management estimated compounded annual increases of 2.5%–3.0% through the contract’s end. Cost savings are expected to phase in over time.
- ABF Freight consolidated 22 smaller terminals in Q1. Together with eight consolidations in the second half of 2013, its service-facility count fell to 247. Estimated annual savings from network changes were $10 million–$12 million, subject to business levels and freight mix.
- Management reported April daily tonnage about 6% above April 2013 and revenue per day about 10%–11% higher, citing tonnage, pricing and fuel surcharges. These are preliminary comparisons, not formal full-year guidance; the filing cautions that pricing improvement may not continue.
- 2014 capital expenditures, net of asset-sale proceeds, were estimated at $90 million–$100 million, including about $60 million for ABF Freight equipment replacements. Depreciation and amortization was estimated at $85 million–$90 million. Planned spending could be adjusted with business levels.
- Risks include competitive pricing and fuel-surcharge recovery, labor and multiemployer pension costs, economic and seasonal demand, equipment maintenance and replacement costs, cyber or systems disruption, and potential Panther goodwill or intangible impairment. The Central States multiemployer pension plan was reported 47.6% funded as of January 1, 2013.
- A citizens group issued a notice of intent to sue alleging Clean Water Act storm-water permit violations at the Kent, Washington facility. The company was investigating; no liability was recorded because potential fines or remediation costs could not yet be estimated. Existing environmental cleanup reserves were $0.9 million.
Most important facts for investors to verify
- Whether ABF Freight can sustain revenue and pricing gains and improve its operating ratio after the unusually severe winter weather effects.
- Whether labor-agreement savings and terminal-network efficiencies materialize as expected, alongside scheduled wage and benefit increases.
- The eventual amount and timing of pension settlement charges, and developments in the company’s multiemployer pension exposure.
- Actual 2014 capital spending, equipment replacement needs, cash generation and debt repayment versus management’s estimates.
- Developments and potential financial exposure from the Kent storm-water matter, and any changes in goodwill impairment assumptions for Panther.