Dive Brief:
- ABF Freight’s unadjusted Q2 operating income jumped by more than 40% year over year to $72.8 million despite a 2% decrease in revenue in the quarter, its parent company, ArcBest, reported last week.
- The carrier offset higher union contract costs and grew operating income by optimizing freight mix, improving productivity and cutting costs, CFO Matt Beasley told investors. It increased rates by an average of 5.1% on contract renewals and deferred pricing agreements, he said.
- In a quarterly earnings release, ArcBest Chair and CEO Judy McReynolds called the operating income improvement “a solid performance, especially considering ongoing macroeconomic headwinds.”
Dive Insight:
ABF Freight is dealing with the same underlying industrial demand weakness as other LTL carriers. But Seth Runser, the former ABF Freight president promoted last week to ArcBest president, provided reason for optimism in discussing a key to the company’s strategy.
The carrier is shifting its focus to more profitable core business, he said on the earnings call, versus lower-priced transactional business that kept drivers employed and trucks on the road through a prolonged freight downturn.
Core customers “come at a better price, better margin, more consistency, which allows us to plan labor much more consistently and [is] why you're seeing some of the productivity gains,” Runser said. “But it really is truly just a mix in our business.”
Contract renewals at ABF Freight were relatively steady from 5.3% in Q1, in line with the generally healthy pricing environment echoed by several other public LTL carriers, TD Cowen analysts said in an investor note.
“Like the other LTLs however, ARCB faces tough yield comps in 2H, particularly given the aggressive mix shift on transactional freight,” analysts Jason Seidl, Elliot Alper and Uday Khanapurkar wrote.
Improving freight mix and productivity became even more of a priority for ABF Freight as tonnage decreased 20.3% YoY and shipments per day dipped 4.8% YoY in Q2, according to the company.
“Now that our core is in a good spot with the Yellow demise, I feel like you're going to see more consistency as we move through the rest of the year and less of these wild swings,” Runser said. “But it's probably going to take till about November to get there. ... We feel pretty good about the progress we've made.”
