ArcBest Corp. continues to emphasize growth among its nontrucking subsidiaries, telling investors it plans for nearly half of the company's revenue to come from the group by the end of 2018.
The Fort Smith-based company unveiled its target during an investor day event Nov. 10 in New York. While ABF Freight remains the core of the trucking and logistics company, Chief Executive Officer Judy McReynolds said ArcBest wants to accelerate growth among the other businesses that currently produce 29 percent of its revenue.
The company's revenue goal for the businesses is between 40 percent and 45 percent by 2018. The long-term goal is 50 percent.
"I think that many people that look at our company continue to only focus on one part of our company and it's our ABF Freight, LTL [less-than-truckload] business," McReynolds said a day later during a presentation at the Stephens Fall Investment Conference. "That's a great foundation for our business because it's allowed us over the years to develop great relationships with our customers. But our customers are changing. What they need is changing."
The subsidiaries -- ABF Logistics, Panther Premium Logistics, FleetNet and ABF Moving -- form what ArcBest calls its asset-light businesses. Acquisitions and other investments in the businesses have impacted ArcBest's revenue growth the past few years. They combined for 11 percent of revenue in 2010, 19 percent in 2012 and 27 percent in 2014.
Brad Delco, an analyst for Stephens Inc. in Little Rock, said the continued merger of both sides of the transportation industry will help "diversify" ArcBest.
"It creates some flexibility," Delco said. "It creates less cyclical extremes in the business. And from a carrier like ArcBest that has relationships with tens of thousands of customers, it's another way of selling a service that could be very complimentary to what they're doing to begin with."
ArcBest has highlighted collaborative cross-selling in presentations the past year, noting that its own research indicated 75 percent of the 40,000 active ABF Freight and Panther customers have two or more logistics needs within its family of companies. In addition, 85 percent of of ABF Freight and Panther customers said they would consider using one of the other services ArcBest's companies offer.
ArcBest also plans to reach its revenue goals by developing services and resources in the maintenance and moving markets. FleetNet, which McReynolds described as AAA for trucking, has contributed $129.7 million in revenue through three quarters of 2015. ABF Moving has accounted for $93.9 million in revenue over the same period.
David Cobb, the company's chief financial officer, said during the Stephens Investment Conference that organic growth opportunities are another solution for growth. He said ArcBest can improve "efficiencies and effectiveness in our current operations by some investments that we're making -- technology, replacement equipment."
ArcBest estimated spending between $1 million to $2 million on enterprise solution investments in both the second and third quarters of 2015, according to a filing with the U.S. Securities and Exchange Commission.
The company will consider other acquisitions, as well. ArcBest purchased Panther Premium in 2012 and acquired Oklahoma-based Smart Lines Transportation in January.
"It would help us with scale in the business to make an acquisition," McReynolds said of future acquisitions. "It would also help us with locations and people. So it's something that, in addition to the huge efforts we're making on the organic side, it would really be a helpful thing to accomplish."
McReynolds said ArcBest doesn't know when it would make another acquisition, but it is "actively" looking for targets. The company projects $150 million to $200 million in acquisitions by 2018.
ArcBest believes the complete road map for growth among the asset-light businesses will help the company move from $2.6 billion in revenue to $3.7 billion in 2018. But Delco said ArcBest's plans to grow the subsidiaries aren't an indication the company is leaving ABF Freight behind.
"It's the core business of ArcBest," Delco said. "I think it's a way of leveraging goodwill with customers that have been created over a 90-year legacy. So I don't know if it's less of an emphasis on LTL [less-than-truckload]. It's more of, as a capitalist you have to employ assets and efforts in an area that's going to generate the best returns. That's a fiduciary duty of the board and the management team. Right now their best emphasis and focus should remain on the nonasset portion of their business."
Business on 11/28/2015