ArcBest's 3Q profit falls 32%

Corporate restructuring to cut 130 jobs, ABF’s parent says

Graph's showing information about ArcBest’s 3rd quarter finances.
Graph's showing information about ArcBest’s 3rd quarter finances.

ArcBest Corp. announced a third-quarter profit Thursday of $12.9 million, down 32.4 percent from $19.2 million in the same quarter of last year.

The Fort Smith company also released plans to consolidate several of the company's departments and brands, resulting in 130 job cuts effective Jan. 1.

The quarter breaks down to earnings per share of 49 cents compared with 72 cents last year, slightly exceeding the 48 cents expected by the average of analysts surveyed by Yahoo Finance.

Total revenue was $713.9 million, less than a 1 percent increase from third-quarter 2015's reported $709.4 million, also surpassing analysts' average prediction of $697.5 million.

In addition, the company publicized its new corporate structure. It entails the consolidation of sales, pricing, customer service, marketing and capacity sourcing departments, and a loss of the 130 nonunion jobs, the company stated in a public filing. ArcBest employs over 13,000 people across its subsidiaries.

"I recognize that it's difficult but necessary for us to take our organization to an enhanced level of customer experience," Judy McReynolds, the company's chairman, president and CEO, said of the losses on an earnings call.

She noted the reason for the shift was to make the company's products and processes better from a customer perspective, "more holistically viewing their supply chain with them, so that you can learn how best to interact with them."

The corporation's structure will be divided into ABF Freight, its existing less-than-truckload asset-based trucking segment; and its asset-light operations, composed of ArcBest and FleetNet America. FleetNet handles vehicle maintenance and repair and will not see any changes.

ABF Freight operations will continue under its president, Tim Thorne. The ArcBest label will encompass all asset-light operations, while the U-Pack and Panther Premium Logistics brands will remain part of the "suite of offerings in logistics services," said ArcBest spokesman Kathy Fieweger. The ABF Logistics and ABF Moving names will not be retained.

Nearly all sales, yield management, customer service and marketing/customer experience departments across the segments will consolidate into ArcBest departments reporting to McReynolds.

Panther President and CEO Louis Schneeberger will be retiring after over six years, "as part of this transition," the filing said.

"By consolidating and creating one customer service department and one sales force across all three of those segments, they basically are creating more of that one-stop shop, if you will, for all of your freight needs," said Brad Delco, transport analyst at Stephens, Inc. "They have had all of the service offerings to be that, but the existing structure wasn't making it easy."

In the news release, McReynolds called it an "exciting day" and considers the move "a significant advancement in the way we do business at ArcBest." She noted that in an effort to "differentiate our company from our competitors," the company decided to integrate its operations to support a "more unified view of the customer" and get out of the "separate silos that we were working from."

"Our customers are asking us to do this, and we are responding," she said in the filing.

"The company is looking to diversify its business by expanding its non-asset-based offerings," concluded Delco. "The way that will be accomplished will be by cross-selling services to existing customers and this makes that transition more seamless."

McReynolds predicted $15 million in pretax annual savings as a result of the changes, with a $10 million expense due to contract and lease terminations of certain locations, software changes and severance pay over the next two quarters.

While this will change how the company organizes its earnings in the future, for this quarter it still reported results from its five segments.

ABF Freight, the less-than-truckload asset-based division, posted $509.5 million in revenue, less than 1 percent under last year's $511.3 million and still the majority of the company's business. While tonnage per day decreased 2.8 percent from last year, total shipments per day rose 1.6 percent. In the release, the company blamed reduced revenue on shrinking fuel surcharges, "and the sluggish economic and market capacity effects."

"The thing that keeps jumping out to me as you go through and look at these numbers is the volume of shipments is up, but the tonnage is down," said Bob Williams, senior vice president and managing director of Simmons First Investment Group. "So in plain English what that means is they might be handling more smaller shipments, and the profit margins may be reduced."

David Cobb, vice president and chief financial officer, cited in the earnings call an increased number of insurance claims and a general rise in health care costs as a negative impact on the quarter. He pointed to $1.7 million more in nonunion health care costs for ABF Freight employees from last year and a $3.2 million increase companywide. The release also drew attention to the positive yields ABF Freight has seen from previous investment in new equipment that have improved mileage per gallon and other costs.

The total of ArcBest's asset-light segments made $217.9 million in revenue, up 3.2 percent from $211.1 million in the third quarter of 2015. This makes asset-light logistics 31 percent of total business, up from 29 percent at this time last year. The company has stated an ongoing goal to grow this component of its business to 50 percent. The company acquired Logistics & Distribution Services of Nevada in September and made two other logistics additions in 2015.

The release attributed the asset-light growth to Panther's continued strength and the payoff from the company's logistics acquisitions. McReynolds congratulated the segment on "another good quarter." Panther's operating income is up 45.4 percent to just under $4 million from the third quarter of last year.

"We believe the combination of our asset-based network with our expanding asset-light relationships is the right model for our customers, especially as capacity restraints become more evident," McReynolds said on the call.

ArcBest stocks trading on the Nasdaq exchange closed up 8.7 percent at $21.95 on Thursday.

Business on 11/04/2016

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