The positive inflection in less-than-truckload (LTL) metrics during August continued with ArcBest Corp. (NASDAQ: ARCB). In a Wednesday filing, the carrier reported that total tonnage per day increased 3.5% compared to August 2019, with LTL tonnage increasing by a high single-digit percentage.
Last week, carriers Old Dominion Freight Line (NASDAQ: ODFL) and Saia (NASDAQ: SAIA) reported modest increases in tonnage on a year-over-year basis for the month, the first since COVID-19 brought large portions of the industrial economy to a halt.
LTL turnaround continues
During August, ArcBest’s asset-based business, which includes LTL operations, reported a 1.5% year-over-year decline in shipments, which was more than offset by heavier loads as weight per shipment increased 5%. The increased weights along with lower fuel surcharges led to a 3.5% decline in revenue per hundredweight, or yield. Pricing on LTL shipments increased mid-single digits excluding fuel surcharges.
Total asset-based revenue per day for the month was flat year-over-year, an improvement from the 6% decline recorded in July. That month saw a 4% decline in total tonnage (LTL tonnage “increased slightly”) and flat yields for LTL shipments excluding fuel. The segment recorded double-digit declines in spot truckload (TL) tonnage during July and August.
By comparison, ArcBest’s asset-based segment recorded an 18% year-over-year revenue decline during the second quarter as tonnage declined 14% and yields fell 4% (up low single digits excluding fuel).
The flat August revenue result continued the company’s streak of sequential monthly improvement that began in May. The improvement has allowed ArcBest to reverse some cost actions taken in late March as the negative impacts from COVID-19 were being felt. The company expects the restoration of wage cuts to officer and nonunion employee salaries, the 401k match and fees paid to board members to be $10 million to $15 million in the third quarter.
“Operating costs continue to be managed relative to the improving business and revenue levels,” according to the filing.
Asset-light demand has turned the corner but capacity remains a cost headwind
The company’s asset-light segment, ArcBest, which excludes results from commercial vehicle maintenance and repair unit, FleetNet reported a 15% year-over-year increase in revenue per day during August. However, tight truck capacity has sent rates significantly higher, resulting in a 16% increase in purchased transportation expenses. For the month, purchased transportation expenses as a percentage of revenue increased 50 basis points to 83%.
July revenue in the division was down 3% year-over-year with purchased transportation expense increasing approximately 200 basis points as a percentage of sales to 84%. The company noted margin compression for both months compared to the 2019 period.
Higher earnings improves liquidity
Through the first two months of the third quarter, the company’s net cash position increased $11 million to $52 million, “primarily reflecting improved EBITDA [earnings before interest, taxes, depreciation and amortization].” ArcBest announced that it repaid proactive borrowings of $180 million and $45 million during July. The company made the drawdowns during the early days of COVID-19 as a means to bolster liquidity.
Goldman Sachs (NYSE: GS) recently initiated coverage of ArcBest with a “buy” rating due to the expectation that the company’s margins will improve in an economic recovery.
Shares of ARCB are up 4% in early trading, ahead of the S&P 500 which is up 2%.
