ArcBest Corporation — Q1 2015 Form 10-Q
Business context and reporting period. The unaudited quarter ended March 31, 2015. ArcBest provides freight transportation and logistics services. ABF Freight is its principal segment; other reportable segments are Panther, FleetNet, ABF Logistics and ABF Moving. ABF Freight represented about 71% of revenue before other revenue and intercompany eliminations.
Key financial results
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $613.3 million | $577.9 million |
| Operating income (loss) | $1.3 million | ($8.7 million) |
| Operating margin | 0.2% | (1.5%) |
| Net income (loss) | $0.7 million | ($5.2 million) |
| Diluted EPS | $0.03 | ($0.20) |
| Adjusted EBITDA | $28.0 million | $18.1 million |
| Operating cash flow | $10.9 million | $6.2 million |
Revenue increased 6.1%; operating performance improved from a year-earlier loss to a small profit. Net margin was approximately 0.1%, versus (0.9%) a year earlier. The effective tax rate was 18.3%, compared with a 42.0% tax benefit rate in Q1 2014.
Liquidity, debt and cash flow
- At March 31, cash and cash equivalents were $166.0 million, short-term investments $46.0 million and restricted cash $1.4 million. Unrestricted cash and short-term investments totaled $212.0 million.
- Current assets were $529.0 million and current liabilities $329.5 million, a current ratio of approximately 1.61.
- Total debt was $155.5 million, including $70.0 million drawn on the revolving credit facility and $35.0 million under the receivables securitization program. Debt was $127.7 million at December 31, 2014. Cash and short-term investments exceeded reported debt by approximately $56.5 million.
- Investing activities used $22.8 million, including $16.5 million for property and equipment net of financing, $2.1 million for internally developed software and $5.2 million for an acquisition. Financing activities provided $20.9 million; cash increased $9.0 million during the quarter.
- The quarterly dividend declared was $0.06 per share, up from $0.03 in Q1 2014. ArcBest repurchased 64,200 shares for $2.5 million.
Material changes and segment performance
- ABF Freight revenue rose 2.9% to $441.2 million; operating income was approximately breakeven versus a $12.2 million loss. Daily tonnage fell 0.5%, while billed revenue per hundredweight including fuel surcharges rose 3.7%.
- Combined non-asset-based segment revenue increased 16.0% to $183.7 million, but combined EBITDA declined to $6.6 million from $7.9 million. Panther operating income fell to $1.2 million from $3.4 million; ABF Logistics revenue increased 59.4% to $47.4 million, with operating income of $0.8 million.
- Management attributed the consolidated improvement partly to higher revenue and less severe winter-weather disruption: estimated ABF Freight weather impact was $6.0 million, versus $10.5 million in Q1 2014. Lower fuel prices reduced fuel-surcharge revenue; average ABF Freight fuel price per gallon, excluding taxes, fell 39%.
- Nonunion healthcare claims costs increased $2.9 million year over year, including $0.9 million at ABF Freight; Panther casualty costs were also unfavorable. Pension settlement expense declined to $1.1 million from $3.7 million.
Outlook, risks and unusual items
- No consolidated earnings or revenue guidance was provided. Management estimated 2015 net capital expenditures of approximately $200 million and depreciation and amortization of $95–$100 million. It said planned capital spending could be adjusted to business levels.
- Management expected quarterly pension settlement expense of approximately $1.0–$1.5 million for the remainder of 2015, subject to lump-sum distributions, plan asset returns and discount-rate changes. No required minimum cash contributions to the nonunion pension plan were expected in 2015.
- For April 2015, ABF Freight daily tonnage was approximately 5% above April 2014 and revenue per day was 3%–4% higher; billed revenue per hundredweight was 1%–2% lower year over year, partly reflecting lower fuel surcharges. Management cautioned that pricing trends may not continue.
- The company reported the Central States multiemployer pension plan was in “critical and declining” status as of January 1, 2015; about half of ABF Freight’s multiemployer pension contributions go to that plan. Future contribution obligations remain uncertain.
- Debt facilities were amended or expanded during the quarter: the $70 million term loan was refinanced as a $150 million revolving facility maturing in January 2020, and the receivables facility was increased to $100 million with a possible additional $25 million, subject to conditions. The company reported covenant compliance and stated liquidity should meet foreseeable needs.
- Contingencies include Clean Water Act lawsuits concerning ABF Freight facilities in Washington and New York, a trademark infringement suit against Panther, and environmental matters. Outcomes and potential losses were not determinable; no liability was recorded for the cited lawsuits. Environmental reserves were $0.9 million.
- Other risks discussed include competition and pricing pressure, labor and benefit costs, fuel-price and surcharge movements, severe weather, cybersecurity and information-system disruption, capital spending, and potential impairment of Panther goodwill and intangible assets.
Important facts for investors to verify
- Whether ABF Freight can sustain pricing and improve labor productivity while tonnage, shipment mix and fuel surcharges fluctuate.
- Whether nonunion healthcare and casualty claims costs normalize, and how pension settlement expense and multiemployer plan obligations develop.
- Utilization of the expanded credit and receivables facilities, debt repayment capacity, and execution of the approximately $200 million 2015 capital program.
- Progress and profitability of ABF Logistics and other non-asset-based growth initiatives, including integration of Smart Lines.
- Developments in the Central States pension plan and the environmental and legal proceedings for which potential outcomes were not determinable.