ArcBest Corporation — Q1 2016 10-Q
Reporting period: Three months ended March 31, 2016. ArcBest provides freight transportation and logistics services; ABF Freight accounted for approximately 69% of revenue before other revenues and eliminations. First-quarter results are seasonally affected by typically lower freight volumes.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $621.5 million | $613.3 million |
| Operating income (loss) | ($9.3 million) | $1.3 million |
| Operating margin | (1.5%) | 0.2% |
| Net income (loss) | ($6.1 million) | $0.7 million |
| Diluted EPS | ($0.24) | $0.03 |
| Adjusted EBITDA | $20.4 million | $28.0 million |
| Cash from operations | $12.2 million | $10.9 million |
- Revenue rose 1.3%, reflecting asset-light segment growth partly offset by lower ABF Freight and Panther revenue. Operating expenses increased 3.1% to $630.7 million.
- ABF Freight generated a $9.0 million operating loss versus near breakeven a year earlier; its operating ratio worsened to 102.1% from 100.0%. Revenue was $439.5 million, down 0.4%.
- At March 31, cash and cash equivalents were $134.8 million, short-term investments $69.6 million, and total unrestricted cash and investments $204.4 million. Total debt was $203.4 million, including $45.9 million current debt. Total assets were $1.25 billion and equity $577.3 million.
- Investing activities used $21.5 million, including $13.4 million of net property and equipment purchases and $2.7 million of capitalized software. Financing activities used $20.9 million, including $11.1 million of debt payments, $2.6 million of share repurchases, and $2.1 million of dividends. Cash and cash equivalents declined $30.2 million during the quarter.
- The company had $70 million drawn on its $150 million revolving credit facility and $35 million drawn under its $100 million accounts receivable securitization program. Securitization availability was $45.1 million after letters of credit. The company reported covenant compliance.
Changes and operating drivers
- ABF Freight daily tonnage declined 0.9%; average billed revenue per hundredweight, including fuel surcharges, fell 1.2%. Lower fuel surcharge revenue, softer industrial freight conditions, customer inventory levels, and greater spot truckload capacity weighed on results. Daily shipments increased 2.4%, but average shipment weight fell 3.2%.
- ABF Freight salaries, wages, and benefits increased to 67.5% of revenue from 63.1%. The company cited contractual wage and benefit increases, higher healthcare costs, unfavorable workers’ compensation and casualty claims experience, and lower revenue from fuel surcharges. Fuel and supplies costs declined with lower fuel prices.
- Asset-light segment revenue increased to $194.7 million from $183.7 million, or approximately 6%. ABF Logistics revenue rose 41%, primarily due to the Bear acquisition, but operating income declined slightly and the acquisition was not accretive to operating profit in the quarter. Panther revenue and operating income declined; FleetNet revenue grew; ABF Moving revenue declined and its operating loss widened.
- Consolidated nonunion healthcare claims rose $1.3 million and workers’ compensation and casualty claim costs were $2.9 million higher year over year. Pension settlement expense was $0.9 million, with further quarterly expense expected.
Outlook, risks, and unusual items
- Management forecast 2016 net capital expenditures of $170 million to $200 million, including approximately $95 million for revenue equipment and $45 million for real estate projects. Estimated 2016 depreciation and amortization was $100 million to $110 million. Capital spending could be adjusted to business levels.
- Management expected enterprise-solution and related personnel and technology investments to add about $3 million to 2016 “Other and eliminations” costs versus 2015, mostly in the second half.
- April 2016 ABF Freight billed revenue per day was approximately 5.5% below April 2015, with daily tonnage down 5.3%. Management noted continued soft freight markets and warned that pricing trends could change and competition could constrain rate increases and fuel surcharge recovery.
- Major risks include freight demand and pricing, labor and benefit costs, productivity, multiemployer pension exposure, fuel-price and surcharge changes, self-insurance claims, acquisition integration, cybersecurity, and seasonal or adverse-weather effects. The Central States Pension Plan was projected to be 46.9% funded and in critical and declining status; the Treasury denied its proposed rescue plan on May 6, 2016, after quarter-end. The filing says this does not change ABF Freight’s contribution rates under the current contract, which runs through March 31, 2018.
- Purchase obligations totaled $153.9 million, with $134.0 million estimated due within one year. The filing reported $216.9 million of off-balance-sheet arrangements, including purchase obligations and operating lease commitments.
- A Clean Water Act complaint against ABF Freight was settled during Q1 for less than $0.1 million and required permitting at the site. The company reported $0.8 million in environmental cleanup reserves and said the outcome and financial impact of a separate environmental compliance matter could not then be determined.
- Management believed existing liquidity and borrowing capacity were sufficient for foreseeable needs. The board declared a $0.08-per-share dividend payable in May. The effective tax benefit rate was 37.4% in Q1 2016; the prior-year rate included a significant benefit from lower enacted state tax rates.
Investor facts to verify
- Whether ABF Freight’s tonnage, shipment weight, productivity, and operating ratio improve as the year progresses, and whether base-rate gains offset fuel surcharge pressure and labor-cost inflation.
- How the Central States Pension Plan responds to the Treasury’s denial, and any implications for future contributions, withdrawal liability, or plan funding.
- Whether Bear integration improves ABF Logistics profitability and whether planned capital expenditures, equipment financing, and enterprise investments deliver expected returns.
- Developments in workers’ compensation, casualty, environmental, and other self-insurance exposures, along with actual cash generation and liquidity usage.