The fourth quarter was the most challenging of 2019 for less-than-truckload (LTL) and logistics provider ArcBest Corp. (NASDAQ:ARCB). If January’s results are a portent of things to come, the road will be rocky for a while yet.
The good news, at least relative to analysts’ expectations, is that fourth-quarter adjusted earnings per share of 56 cents came in well above consensus estimates of 44 cents per share. Operating income was $20.2 million, up from the $17.9 million consensus. Revenue was $717.4 million, slightly below consensus, as revenue for its LTL and “asset-light” units were lighter than in the 2018 period, a much better macro environment for providers.
Weak industrial demand, a persistent thorn in the sides of all LTL carriers, contributed heavily to the weakness in the quarter. The LTL unit, which accounts for roughly two-thirds of ArcBest’s overall revenue, posted year-on-year daily shipment and tonnage declines of 7.3% and 8.1%, respectively, while revenue fell 6.5% to $513.3 million. The unit suffered double-digit daily tonnage declines in its higher-priced LTL traffic, while reporting double-digit increases in truckload shipments tendered via the spot, or noncontract, market. The weight of the average LTL shipment fell 6.3%, ArcBest said.
Shipment mix began trending in December more strongly toward heavier truckload-rated spot traffic, company executives said. That trend has continued into January, they added. Double-digit tonnage gains in truckload have fueled a 4.5% rise in overall daily tonnage, while LTL tonnage has been flat, ArcBest said. Daily shipment count dropped 2% over January 2018 levels, ArcBest said.
LTL operating ratio, the ratio of revenues and expenses, went the wrong way last quarter, rising to 96% from 93.3% in 2018. This meant the unit spent 96 cents for every $1 in revenue, up from 93.3 cents. The company blamed the negative trend on “lower business levels” that eroded efficiencies in dock, city pickup and delivery services, thus negatively impacting operating costs per shipment
LTL pricing, which has remained strong for about 30 months despite the pronounced 15-month weakness in industrial activity, will be “competitive and rational” in 2020, said Judy R. McReynolds, ArcBest’s chairman, president and CEO. Near double-digit increases during a strong 2018 gave way to pricing gains in the mid single-digit range during 2019, according to executives.
LTL carriers have benefited for years from a concentrated provider environment. The top 10 carriers control about three-quarters of the $42 billion sector. The much larger truckload market is deeply fragmented, a reflection of the segment’s low barriers to entry. By contrast, LTL carriers operate over complex hub-and-spoke networks that are expensive to assemble and to execute.
ArcBest’s asset-light business, which includes its expedited delivery, brokerage and managed transportation, posted a 2.8% drop in fourth-quarter revenue, a $25.4 million operating loss compared with $7.5 million in operating income in the 2018 quarter, and $4 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), compared to Adjusted EBITDA of $11.3 million in the year-earlier quarter.
The division was hit by weaker demand for expedited services in an environment of lower-priced options, and revenue per-shipment declines in brokered shipments that outpaced the decline in purchased transportation costs. Managed transportation, where providers manage shipping and logistics solutions for larger customers, performed well, the company said.
ArcBest share price dropped by nearly 13% on Friday, closing at $22.31 a share in a terrible day for equity values.