ArcBest Sees Trends Rebound During May - ArcBest (NASDAQ:ARCB), Bank of America (NYSE:BAC)

In a filing with the U.S. Securities and Exchange Commission, ArcBest Corp. (NASDAQ:ARCB) reported sequential improvement during the month of May, supportive of recent industry commentary suggesting that the less-than-truckload (LTL) market may have bottomed in April.

The Fort Smith, Arkansas-based logistics provider reported a 22% year-over-year consolidated revenue decline through the first two months of the 2020 second quarter. The April-May period of 2020 has two less working days compared to the prior year period, but the second quarter of 2020 will have the same number of working days as the 2019 period.

May declines showing improvement compared to April

ArcBest reported an 18.5% year-over-year decline in revenue per day in its asset-based segment, primarily LTL, as tonnage was down 14% (total shipments down 13.5%, total weight per shipment down 0.5%) while revenue per hundredweight, or yield, declined 4.5%.

The total yield metric was negatively impacted by lower fuel surcharges, a freight mix shift to more transactional shipments to fill capacity that would otherwise be idle and a 0.5% increase in weight per shipment. Revenue per hundredweight on LTL shipments experienced a "slight increase" excluding fuel surcharges.

Retail diesel prices, the basis for most carrier fuel surcharge programs, have moved more than 20% lower so far in the quarter.

ArcBest noted improvement in pricing on LTL shipments excluding fuel surcharges in May compared to May 2019 and April 2020. Further, increases on deferred pricing and annually negotiated contracts that renewed in the first two months of the second quarter were similar to the 3.1% average increase reported during the second quarter of 2019.

ArcBest implemented a 5.9% general rate increase in February and contractual rate negotiations in the first quarter included renewals that were 4.3% higher.

In its first quarter 2020 filing, the company reported an April decline of 21% year-over-year in daily revenue in the asset-based segment as tonnage declined 14% (total shipments decreased 16%, total weight per shipment increased 2%) and revenue per hundredweight fell 7.5% inclusive of fuel surcharges. The overall yield decline in April, which included "a mid-single-digit" yield decline on LTL shipments excluding fuel, was distorted by lower fuel surcharges, weaker spot truckload rates and increased shipment weights (4% higher in LTL).

The June 4 update from the company made reference to historical seasonal margin improvement in the asset-based segment from the first quarter to the second. However, due to the negative impact caused by the pandemic, the company doesn't expect the usual seasonal improvement to be "comparable to historic trends." Further, the filing said recent cost actions may not match declines in demand.

In response to COVID-19 headwinds, ArcBest previously took several cost actions including headcount reductions of 1,000 employees in the asset-based segment, a 15% cut to non-union employee salaries and the suspension of its 401k matching. These actions are expected to result in $15 to $20 million in year-over-year cost reductions during the second quarter. The company trimmed its capital expenditure (capex) budget by 30% to a range of $95 to $105 million to preserve capital.

Revenue per day for most of the company's asset-light operations was approximately 12% lower year-over-year during May, improving from the 17% year-over-year decline reported for April. Purchased transportation expense as a percentage of revenue increased 200 basis points in May to 84%, resulting in margin compression. The May result reversed the positive trends seen in April when purchased transportation expenses declined 200 basis points to 80% of revenue and margins improved. The month of April benefitted from COVID-19-related project business, while shutdowns in the automotive and manufacturing segments caught up with demand for expedited services in May.

ArcBest reported a $30 million net cash position through the end of May, compared to $3 million in net debt at the end of the first quarter. The company listed positive earnings before interest, taxes, depreciation and amortization (EBITDA) as the primary reason for the improvement.

Two-step upgrade

Shares of ARCB were up more than 10% on June 3, closing at $24.21 in part due to a two-step rating upgrade from "underperform" to "buy" at Bank of America Corporation (NYSE:BAC). Equity research analyst Ken Hoexter raised his price target on the shares to $26 from $21, citing an improving cost structure and noted that it doesn't take large operational improvements to move the company's "thin margins."

Further, he sees an inflection point in freight volumes and believes that some of YRC Worldwide Inc. (NASDAQ:YRCW) $5 billion LTL freight market share could continue to end up at other carriers as YRC continues to navigate financial hurdles. Hoexter is not anticipating YRC to "cease as a going concern."

In the report, Hoexter raised price targets on all trucking stocks by 20% on average as he sees "ongoing capacity rationalization" in the industry as "supportive" to truck rates next year.

Shares of ARCB are flat in midday trading on June 4.

Click for more FreightWaves articles by Todd Maiden.

ARCBArcBest Corp

$151.58-%

Overview

BACBank of America Corp

$60.680.10%

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