Weak demand coupled with cost pressure weighed on ArcBest's third quarter. The company has mitigated some of the earnings pressure through internal initiatives in recent quarters but really needs a more cooperative freight market to push numbers higher.
ArcBest (NASDAQ: ARCB) reported third-quarter adjusted earnings per share of $1.64, 21 cents below the consensus estimate and 67 cents lower year over year.
The adjusted EPS result excluded expenses tied to past acquisitions and ongoing technology pilots. It also excluded a $69.1 million after-tax reduction in the fair value of MoLo's earnout provision. The MoLo truck brokerage business, which ArcBest acquired three years ago, didn't meet financial targets last year and isn't expected to meet them this year.
The asset-based segment, which includes ArcBest's less-than-truckload subsidiary, ABF Freight, reported a 4.2% y/y revenue decline (5.8% lower on a per-day basis), as an 11.3% decline in tonnage per day was partially offset by a 7.4% increase in revenue per hundredweight, or yield. (Yield was up by a high-single-digit percentage excluding fuel surcharges.)
A 10.7% y/y drop in weight per shipment drove the tonnage decline as shipments per day were off just 0.7%. Management said customer retention remains strong, but it is seeing lower pallet counts per stop as the industrial economy remains soft.
Tonnage per day declined y/y by 12.5% in July, 9.9% in August and 12.2% in September. Tonnage was down 9% y/y in October but flat with September. October had a tough y/y comparison to October 2023, which benefited from a cyberattack at competitor Estes.
The y/y tonnage declines peaked at 22% in May (down 20.4% on a two-year comparison). Declines are expected to ease as the fourth quarter progresses, largely due to easier comps. Tonnage was down 9.6% y/y last November followed by an 8.3% decline in December.
ArcBest's prior-year tonnage comps are easier than those of many of its peers. It began swapping out transactional freight with better-yielding freight from core contractual customers around the time Yellow Corp. (OTC: YELLQ) closed. The process dragged down tonnage as the change in freight mix resulted in lower shipment weights.
The 7.4% increase in the yield calculation during the quarter was driven by the decline in shipment weight. Netting out the change in weight resulted in a roughly 3% decline to yield.
Yield was down 3% y/y in October (flat excluding fuel surcharges) and down 3% from September (with and without fuel). Management called out a tough monthly comp to last year (up 8.1%) and a less favorable mix profile as the reasons for the weaker yield result. It said nothing structural has changed around price negotiations, which continue to be "rational" across the industry.